Funding Commission Funding the Future

A 10-year framework for civil society

Supported by Sponsored by Published by NCVO Regent’s Wharf 8 All Saints Street London N1 9RL © NCVO 2010 Registered Charity Number: 225922 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying or otherwise, without the prior permission of NCVO. Design by SteersMcGillanEves Design Printed by Short Run Press British Library Cataloguing in Public Data A catalogue record for this book is available from the British Library ISBN: 978-0-7199-1805-6 Funding Commission Funding the Future

A 10-year framework for civil society Contents

Members of the Funding Commission 2 Increasing effectiveness 16 Foreword i 2.1 Increasing and demonstrating impact 18 Executive Summary ii 2.2 Increasing financial capability 19 2.3 Making better use of social media and technology 20 1 Context 1 2.4 Promoting the value of CSOs to commissioners 21 1.1 The Funding Commission’s remit 2 2.5 More and better collaborative working 22 1.2 Future scenarios 3 2.6 Developing sustainable and effective infrastructure 23 1.3 Current funding patterns 8 1.4 Funding trends and outlook 12 3 Using existing resources 28 3.1 Helping increase impact 30 3.2 Helping increase CSOs’ financial capability 31 3.3 Making the most of funders’ assets 31 3.4 Promoting good grant-making 33 3.5 Other actions 36 3.6 Ensuring all types of CSO benefit 37 4 Increasing income 38 6 Implementation 68 4.1 Increasing individual giving 40 6.1 Lead responsibilities and timeline 69 4.2 Increasing earning through trading 48 6.2 Provisional costings 69 4.3 Increasing commercial sector support 51 6.3 Costs and outcomes 70 4.4 Other actions 54 4.5 Ensuring all types of CSO benefit 55 Annexes 72 Annexe 1 Methodology 74 5 Government’s role 56 Annexe 2 Interviewees and meetings 76 5.1 Investing in collaboration 58 Annexe 3 Lead responsibilities and timeline 80 5.2 Developing the Big Society initiative 59 Annexe 4 Provisional costings 84 5.3 Changing commissioning 60 5.4 Developing a social investment market 62 Notes and references 86 5.5 Supporting the Commission’s recommendations 66 Acknowledgments 88 5.6 Other actions 67 5.7 Ensuring all types of CSO benefit 67 This report can be accessed on the Funding Commission’s website http://www.ncvo-vol.org.uk/fundingcommission where there are also additional annexes (see below for details) which provide further background detail to the report, as well as the various papers listed in Annexe 1. The Executive Summary is also available on the Commission’s website as a separate downloadable document.

Website Annexes 1 Data sources 2 Future scenarios 3 Initiatives to promote giving 4 Fundraising – regulation and tax 5 Commercial giving – tax and fiscal incentives Members of the Funding Commission

Chair* – Fiona Ellis, Interim Director, Toby Eccles, Development Director, Philanthropy UK, and former Director Social Finance of the Northern Rock Foundation Brian Horner, Chief Executive, Vice-Chair – Stephen Dunmore, Chair Voluntary Norfolk of Capacitybuilders, and former Chief John Low, Chief Executive, Executive, Big Lottery Fund Charities Aid Foundation Paul Amadi, Group Head of Fundraising, Secretary – Richard Gutch, Associate, NSPCC, and Chair of the Institute of Prospectus, and former Chief Executive, Fundraising Futurebuilders England Dawn Austwick, Chief Executive, Head of Secretariat – Belinda Pratten, Esmée Fairbairn Foundation Head of Policy, National Council for Michael Brophy, Chair, The Capital Voluntary Organisations Community Foundation *Rachel Lomax, former Deputy Governor of the Dinah Cox, Chief Executive, Bank of England, chaired the Commission from Safer London Foundation February 2009 until April 2010, when she stood down due to other work commitments. Claire Dove, Chief Executive, Blackburne House, and Chair of the Social Enterprise Coalition Foreword

The National Council for Voluntary Having now seen the Government’s NCVO is committed to taking forward the Organisations (NCVO) set up the Funding October 2010 Spending Review proposals, Funding Commission’s recommendations. Commission in February 2009 because it is clear that life for all of us is going to be It is going to be very important that all the of the sector’s concerns about funding. very different from now on. Although the sector’s infrastructure bodies work It was already apparent that the decade of Spending Review does not reveal the full together to deliver the agenda set out in growth, driven in the main by public sector details of what is in store, it is clear that we the report. We cannot build boundaries contracts, but also by increased trading must start planning now for the longer around the interests of trustees, chief and giving, was coming to an end. What term. As Eleanor Roosevelt said, ‘If we wait executives, fundraisers and funders. was less clear was that we were not just until we’re ready, we’ll never get started.’ When it comes to the future funding and facing the prospect of two or three All this makes the timing and the work sustainability of the sector, we must all difficult years; we were about to of the Funding Commission that much work together for the benefit of the sector experience a radical shift in the financial more important. and its beneficiaries. context within which civil society operates. I always envisaged that the Commission I would like to express my thanks to Fiona Faced with the prospect of increasing would help set a funding agenda for the Ellis (chair), Rachel Lomax (past chair), demands for services, but without the sector for the next 10 years. Their report Stephen Dunmore (vice-chair) and the resources to continue to respond in the has exceeded my expectations and other eight commissioners for all their same way as before, we are also witnessing provides a strategic map for the way work. My thanks also go to Richard Gutch an unprecedented number of new ways forward. The Commission has recognised (secretary) and Belinda Pratten (head of of organising our lives and delivering that the new context we are now in secretariat) for their hard work in seeing those services. presents significant opportunities, as well the report through to completion. Finally, as challenges for us all. It has set out the I am grateful to our three sponsors and to None of us quite knows how the future is financial architecture required to ensure all those listed at the back of the report going to turn out, but it is clear that civil a healthy civil society. who have contributed their comments and society organisations, in all their various ideas to the development of this report forms, are going to have a vital role to I am also encouraged by the positive and who have helped with its production. play, both in helping shape this new future response the Commission has had when it and in helping deliver it. It is also clear consulted on its draft recommendations. that sustainable funding is essential to Civil society organisations must now step guarantee the independence of the up to the mark and realise their full sector, which will be more important potential. Funders and commissioners of than ever in the difficult times ahead. public services must ensure they make the best possible use of the resources available to them. NCVO and other sector leaders Sir Stuart Etherington must ensure we exploit the opportunities Chief Executive, NCVO for generating increased income over the December 2010 next 10 years. And Government itself must play its part in providing limited investment where it is most needed.

i Executive Summary

ii Funding the Future Introduction

The Funding Commission was set up by NCVO in February 2009 to respond to the sector’s concerns and uncertainty about funding over the next 10 years and to set a new funding agenda. Our working definition of civil society follows that of the NCVO UK Civil Society Almanac: ‘Civil society is about people acting together, independently of the state or the market, to make a positive difference to their lives and/or the lives of others.’

iii Executive Summary

Introduction

NCVO estimates there are 900,000 civil Context Future trends society organisations (CSOs) in the UK with The Commission’s work has taken place The Commission believes there are five an income of £157bn. These include at a pivotal time. After what has been developments which will have a particular 600,000 small, unincorporated ‘below the variously described as ‘the nice decade’ influence on our future, including the radar’ organisations and 170,000 charities, and the ‘years of plenty’, we are about to future funding of CSOs: as well as trade unions, universities, witness the biggest cuts in public • An ageing population churches, housing associations and political expenditure and the most radical changes • A more diverse population and parties. The Funding Commission wants to to public services, since the Second World household structure help ensure a better funding environment War. An enhanced role is envisaged for • Development of new technology for all CSOs, but our main focus in this CSOs, while cutbacks in their funding are • Climate change report is on charities, social enterprises and being announced every day. The outlook • Ethical consumerism and social values other voluntary and community groups, for voluntary funding is uncertain, as the including ‘below the radar’ organisations. prospect of increased unemployment and These long-term changes are taking place low economic growth make it difficult to independently of government, although Unless otherwise stated, the statistics predict individual and commercial support. government policies and actions can affect about funding income in the report are Taking a longer term perspective in this the impact they have. Other more from the NCVO Almanac 2010 and relate context is challenging. immediate changes are the result of action to charities’ income in 2007/08 (the most by government itself. Again, five stand out: recent year for which data is available); Predicting the future is a difficult task. they do not include social enterprises that There is an alternative which is to design • Public finance deficit reduction are not registered charities. The statistics the future we want and work to make it • The Big Society initiative about individual giving are from NCVO/ happen. It is already clear that there are • Localism Charities Aid Foundation’s (CAF) report going to be rough waters ahead in the next • Reform of public services on UK Giving 2009 and relate to 2008/09. few years, but provided the right steps are • Transparency and accountability In both cases, the statistics do not reflect taken now, we believe it is possible to look the full impact of the recession or the forward to a time when CSOs will be public expenditure cuts. Following the stronger and more sustainable than they practice of the Almanac, this report uses are today. But the key to this will be a the term charities when referring to shared understanding that now is not the funding statistics, but, otherwise, uses time to weaken and undermine CSOs; now the more generic term, civil society is the time to recognise that they are more organisations (CSOs). important than ever and to take the steps required to ensure they can play their role to the full.

iv Funding the Future We see two possible scenarios Funding outlook for the period ahead. Over the past decade, charities’ income Under one scenario, the present pattern of has grown by £10bn largely through public services is cut to the bone, serving increases in public sector contracts, fewer and fewer people. Commercial trading and individual giving. All these organisations take over the running of income sources are now showing signs many of the services that are left, working of decreasing, but we believe, taking a to narrow eligibility criteria under large 10-year perspective, this does not have scale, performance-based contracts. The to continue, provided action is taken. public sector protects its own. CSOs We believe it is possible to double become hopelessly overstretched and individual giving to £20bn by 2020; to unsustainable through reductions in their increase the share and quality of public funding and an unrealistic assumption that sector contracts delivered by CSOs; to voluntary effort and income can fill the increase income from other forms of gap left by the state’s withdrawal. trading and to increase commercial sector Disadvantaged communities suffer most support. We also believe £10bn more and inequalities increase , as the cuts in private investment can be attracted public services and welfare benefits begin through new approaches to social to bite. investment and that the sector can Under another scenario, instead of steady become better capitalised and more decline, it is possible to envisage a radical resilient as a result. shift through which the present pattern of But we are not just interested in ‘more’; public services and models for delivery are we also maintain that better use should be altered through co-production with service made of the resources that are already in users. A new social contract is developed, the sector, such as the assets of trusts and involving innovative partnerships between foundations and grant-making the public, commercial and civil society programmes. sectors and new financing arrangements, including increased voluntary income. Four things need to happen to bring CSOs have stepped up to the mark to about this future. realise their full potential. Government investment and commercial sponsorship has helped CSOs do this. Local people and service users have played a central role in shaping the future. We are concerned that, despite the rhetoric of the Government’s Big Society initiative, we are currently in danger of heading for the first, rather than the second scenario.

v Executive Summary

1 CSOs must step up to the mark

CSOs must step up to the mark by Increasing financial capability Commentators differ as to how far they increasing their impact, developing While recognising the current pressures see information and communications increased financial capability and on CSOs’ finances, our work has shown technology (ICT) and social media making better use of social media and that many trustees and staff of CSOs have resulting in a net increase in donations, technology. They must get better at a poor understanding of the importance as opposed to simply replacing old demonstrating their value to of capital for organisational development technologies. Even so, new approaches are commissioners, working more or the different options open to them for going to be necessary to ‘refresh the ask’ collaboratively with each other and building up capital and financing their in a contemporary form and there is with other sectors and developing more organisations’ activities. As a result, they a real opportunity to reach more young sustainable and effective infrastructure will often be risk averse and will always people with these approaches. arrangements. tend to use grant income, when a better CSOs therefore need to develop their option might have been to try to access Increasing impact understanding and awareness of these debt, quasi-equity or other financial There has been much rhetoric about issues, so they can take full advantage of instruments. The lack of financial the importance of CSOs increasing and the opportunities which social media offer capability also applies to some of the demonstrating their impact (social, – and not get ‘left behind’. suppliers of finance to CSOs, including the economic and environmental), but not boards and staff of many charitable trusts ICT will also have wider implications for enough good practice. Thinking about, and foundations. the way in which the sector accesses measuring and reporting on impact needs information and the way in which others to become part of the natural way CSOs Making better use of social media access information about the sector. The do things. They will then be better placed and technology development of ‘open data’ and greater to increase the difference they make for The rapid development of new data sharing will provide both their beneficiaries. mechanisms for giving, including PayPal, opportunities and challenges for all types JustGiving and Localgiving, electronic Most CSOs accept this, but they need help of CSOs in the years ahead. change systems and mobile phone apps in doing it. It would be a mistake like GetGiving – as well as the improved to seek to prescribe one particular opportunities for contacting people, the approach to measuring impact, such as growth and availability of data and the social return on investment; different reduced entry and transaction costs approaches will suit different types of involved in using the technology – will all activity and different sizes of CSOs. have an increasing impact on individual However, particular sub-sectors need to giving. Not only will they make giving develop a shared approach to formulating easier, but they also have major common outcomes and then to share implications for the way organisations, learning through knowledge management. especially intermediaries, will have to operate in the future.

vi Funding the Future Promoting the value More and better collaborative working Developing sustainable and of CSOs to commissioners Better collaboration between CSOs, effective infrastructure With major upheavals in public services in including mergers where appropriate, can The present configuration of prospect, CSOs will need to become much lead to increased impact for beneficiaries infrastructure, at the national, regional and more assertive and confident about what through better and more accessible local level, is unsustainable and, in places, they can bring to the table. By focusing services and a stronger campaigning voice, incomplete. A concerted programme of more on their impact, they will be better as well as improved efficiency through mergers and other forms of formalised placed to promote their services to economies of scale, shared back-office collaborative working is required. This commissioners, but they also need to functions and reduced duplication. needs to take account of different local demonstrate their ability to engage users circumstances – one size will not fit all – as Donors and funders sometimes complain in the commissioning process and to well as ensuring that the linkages between about what they perceive to be a lack of develop new models of service delivery, different levels of infrastructure are more collaboration between CSOs. The sector as well as bringing added value through fully developed, taking full advantage of has sought to address this in a number of increasing social capital, involving new technology. ways, including consortia, coalitions, volunteers and leveraging extra resources. partnership agreements and mergers. A managed market model of support At the same time, commissioners need to Collaborative working with the provides the best way forward. This should develop processes which embrace these commercial sector and with spin-outs comprise supply-led support, available to opportunities. from the public sector is also becoming those who most need it (including the more common, particularly when smallest groups at the tendering for larger contracts. None of grass roots), as well as demand-led these approaches is easy and we believe schemes providing grants to those in this is an area where some one-off particular need of specialist support, investment is required, particularly where e.g. for business advice. This model should restructuring is involved. recognise the need for specialist bodies, like equality groups or those representing Yet, in any effort to cut out wasted effort specific client groups, to maintain an and resource, we must acknowledge the independent voice. motivations that lead people to set up or become involved in charities and voluntary Again, this restructuring will require action in the first place and the social capital investment, as well as strong leadership and personal development that can result. from the sector itself.

vii Executive Summary Funders and commissioners of public services 2 must make better use of current resources

Funders and commissioners of public Making the most of funders’ assets All trusts and foundations, of whatever services must make the most of their Funders have a range of different assets type, are required to demonstrate that current resources by helping CSOs which could be used to benefit CSOs. they are using their funds to achieve public learn how to increase their impact, For example, local authorities have benefit and their trustees have helping CSOs increase their financial community buildings which are often a duty to report on how they do this. capability, and making the most of their not being fully used; the transfer of A small number of trusts and foundations own assets, as well as practising good community assets initiative and the further are already pursuing social investment grant-making. proposals planned in the Decentralisation policies by looking at a range of ways their and Localism Bill are aimed at making investments can help promote their Helping increase impact better use of these, including greater use charitable objects and enable their funds CSOs should be continually looking to see by CSOs. how they can increase their impact, but to go further. They can also help capitalise funders have an important role in helping Pro bono initiatives are another resource the CSOs they support. that can be used to benefit CSOs; the them do this and in promoting good Promoting good grant-making government’s plan for all civil servants to practice and learning between CSOs. The Grant-making practice has improved do six days volunteering per year is better CSOs become at communicating considerably in recent years, but there intended to promote this. their impact, the better they will be able to are still examples of funders who will only promote themselves to other funders, However, the best example of where fund short-term or innovative projects, supporters and commissioners. assets could be used more for public have unrealistic expectations of what can Helping increase financial capability benefit are trusts and foundations; these be achieved and fail to recognise the full Funders can enhance their own impact by cover a wide range of different types of costs involved in delivering particular helping increase CSOs’ financial capability. organisation, including endowed outcomes. Equally, funders’ processes Over time, this will help CSOs become less foundations, community foundations and can sometimes be disproportionately risk averse, make better use of different benevolent societies, which between them complex and result in unnecessarily high types of finance and, as a result, become hold around £63bn assets. Most of these transaction costs for both parties. better capitalised and more resilient. assets are concentrated in a relatively small number of organisations.

- Help individual CSOs or groups of - Stimulating the potential of open data Recommendation 1 – CSOs working in the same sub-sector to produce a virtual knowledge bank of Increasing Impact Fund to develop the systems and expertise those CSO interventions that deliver to measure their impact the most impact - Build up expertise across the sector • CSOs should subsequently be • BIG and other major funders involved as a whole expected to: in the Intelligent Funding Forum should • One of the priorities of the Fund should - Publish impact assessments and work with sub-sector umbrella bodies be to choose or, where necessary, evaluations in their Annual Reports to set up an Increasing Impact Fund, develop a series of common frameworks and Summary Information Returns comprising £5m p.a. for three years, to: comprising outcomes for different and on their websites - Build on, develop and disseminate sub-sectors (including equalities), - Share learning (failures as well as examples of different types of good working in conjunction with relevant successes) with other CSOs in the same practice in developing, measuring and sub-sector umbrella groups. Using this sub-sector. reporting on their social, economic and outcomes framework, all funders should Benefits: All CSOs, especially those environmental impact give priority to: without the capacity or the resources - Developing a shared evidence base to invest in improving their impact. - Encouraging shared learning

viii Funding the Future It is particularly important that funders like • The Charity Finance Directors Group trusts and foundations and the National Recommendation 2 – should work with NCVO, the National Lottery take full account of changes in the Financial capability Association for Voluntary and wider funding environment, which might Community Action (NAVCA), ACEVO, impact on, say, unpopular causes, programmes Skills – Third Sector and business equalities groups or other disadvantaged schools and training providers, to build groups. This will require improvements in • Funders, including the financial services on and develop the financial literacy the quality of data about trusts and industry, should recognise the programmes currently available for foundations (which is currently very poor importance of CSOs increasing their sector chairs, treasurers, chief considering their importance as a funding financial capability and provide finance executives and directors of finance source), as well as extensive information to promote this (or their equivalents). sharing between funders. Benefits: All CSOs with resources. Some, but not all, of the larger trusts and foundations have well-developed effective governance, including strategies for using their funds; however, Recommendation 3 – oversight of investment strategy good practice could be further developed Investment of trusts’ • The sector needs better data on current and disseminated more widely. Strategies trusts’ and foundations’ social could include ways of helping CSOs access and foundations’ assets investment practice to help inform the development and working capital, e.g development of initiatives for through using part of their grants budget • Trustees should consider whether social capitalising the sector. The Association for loans, quasi-equity and patient capital investment is an appropriate route to of Charitable Foundations (ACF) should – this could also have the added benefit of achieving their charitable objectives, secure resources to undertake a survey making their funding go further. while also taking account of issues of risk of members’ approaches and attitudes At the other end of the spectrum, it is and flexibility and potential implications towards social investment and develop very important that all types of grant for grant budgets further guidance on these issues in the maker consider having some small-grant • Boards of trusts and foundations should light of this survey. programmes to help local community regularly review whether they have the Benefits: Potentially benefits all CSOs groups develop their potential. right range of skills and expertise for with resources.

knowledge and information, through Recommendation 4 – funder forums and other networks, Good grant-making about which interventions work best • All funders, including local authorities and parish councils, should consider • ACF should identify good practice in having some light-touch, small grant grant-making and promote this more programmes, targeted at local widely (as part of the survey in community groups Recommendation 3) • All funders should ensure their • NCVO, CAF and ACF should work application and monitoring processes together to improve the quality of data are proportionate and should keep their about trusts and foundations and other transaction costs to an appropriate level funding sources, making full use of the for achieving their particular aims. potential of ICT in this field • All types of grant funders, including Benefits: All CSOs applying for grants. Research Councils, should share

ix Executive Summary NCVO must work with other infrastructure 3 bodies to increase the sector’s income

NCVO must work with others in The Giving Campaign (2001-04) helped We are therefore proposing a new the sector to secure resources for stimulate more giving, helped increase campaign, called ‘Better Asking’; part of initiatives aimed at increasing charities’ use of gift aid and developed this campaign should be about ensuring individual giving, trading and initiatives to educate children about CSOs make the best use of social media commercial sector support. charities, but did not succeed in raising and technology in their approaches the sums originally planned. Some of the to asking. Increasing individual giving lessons of the campaign were that all those The campaign should aim to increase the Over the next 10 years there will be involved in asking for funds should have confidence and the competence of all two million more older people (who been more involved; stronger messages those involved in asking for funds for traditionally give more to charity) and the about the work of charities and the charities, including trustees, chief ‘baby boomer’ generation (with more importance of civil society needed to be executives, paid fundraisers, volunteer wealth than any previous generation) will disseminated; and the campaign should fundraisers and communications staff. be retiring; there will also be an increase in have gone on longer. the number of multi-millionaires in the UK. It should work through existing agencies, These trends, coupled with radical changes The consensus from our interviewees is rather than setting up new ones, but in the role of the state and society, mean that the priority should now be to increase should inject new finance to help them there is the potential for more individual the quantity, and improve the quality of, scale up their activities. It should be giving over the next 10 years, through asking for donations and then of engaging directed by a small executive body, donations, philanthropy and legacies. with donors, rather than promoting an including philanthropists, which will hold abstract concept of giving. the delivery agencies to account for achieving agreed outputs and outcomes, but also ensure the relevant umbrella bodies are fully involved.

Activities: • Supporting initiatives to improve the Recommendation 5 – • Training initiatives for trustees, CEOs, and way in which CSOs communicate their The Better Asking paid and volunteer fundraisers to enable work and engage with those who better asking and better engagement support them campaign • Developing and supporting collective • Raising awareness of CSOs through approaches to fundraising, working in media work around philanthropy NCVO should work with the Institute of conjunction with community • Developing new, more open, measures Fundraising, the Fundraising Standards foundations and taking full advantage of for evaluating both the cost Board, ACEVO, Charity Trustee Network new initiatives like electronic rounding effectiveness and the success of and CAF to secure funding for a Better up and Localgiving different fundraising approaches. • Supporting the development and Asking campaign on the following lines: Outcomes: sharing of innovative approaches to • More giving millions – through Objectives: fundraising, including sharing research, increased levels of philanthropy from • Improve the quality and effectiveness e.g. on donor motivation and the high net-worth individuals of all forms of fundraising, especially effectiveness of different approaches • More giving more – through current by smaller and local CSOs • Helping develop new ways of asking donors giving more effectively and • Help develop, support and promote people to give, taking advantage of new increasing the size of their donations innovative approaches to asking mechanisms for giving • Millions giving more – through • Promote the importance of the work • Building the capacity of CSOs to engage attracting new donors, especially of CSOs. with social media and technology and younger people. commissioning further research into how the potential of new developments Benefits: All CSOs involved in fundraising, in this field can be more fully exploited especially smaller, local CSOs. x Funding the Future The campaign should seek to increase • Access to markets: Partnerships between individual giving in real terms from Recommendation 6 – CSOs engaging in social enterprise and £11.3bn in 2008/09 to £20bn in 2020. Trading up national charities or commercial It will cost £10m – to be met by companies should be brokered with the investment from the commercial sector help of support agencies (e.g. the financial services and NCVO and the Social Enterprise Coalition • Recognition: As more social communication industries) and other (SEC) should work together to promote entrepreneurs develop initiatives in the sources, with appropriate government better support for charities and social civil society sector, the role of social support, e.g. matched funding at a later enterprises involved in trading, including: entrepreneurship should be seen as a stage in the campaign. • Access to capital: Funders should be specific area of expertise, which should Increasing trading encouraged to provide high risk, venture be supported, recognised and Trading on the open market, i.e. capital to intermediary agencies like celebrated as a distinct profession. trading with individuals, CSOs and the UnLtd and Venturesome for investment Benefits: All CSOs wanting to become commercial sector, is the second most in social enterprises to enable them to involved in, or develop their existing, important source of income for charities. develop their activities (see also trading activities. CSOs engaging in social enterprise need Recommendation 11) access to capital and to markets, as well • Access to skills: Business support for as appropriate skills and business support. social enterprise needs to be tailor- However, to date, most of the initiatives made to their needs and is often best for supporting social enterprise have provided through the provision of grants focused on public-service contracts, for vouchers to purchase advice from rather than on open-market trading. consultants and specialist agencies or as part of an ‘engaged funder’ approach Increasing commercial support There is considerable potential for increasing the level of different types of commercial support to CSOs. The Recommendation 7 – - Promote the opportunities for mutual relationship between the commercial benefit through increased partnerships and civil society sectors needs to be Mutual benefit with the by publicising examples of good developed into a more positive and practice, particularly to CSOs mutually beneficial one. We believe commercial sector - Recommend ways of increasing the commercial sector is becoming awareness of the tax and fiscal increasingly aware of how engagement • NCVO, CAF and Business in the incentives available, particularly with CSOs can help develop its staff, Community (BITC) should jointly among SMEs. improve its brand and open up new convene a working group of relevant • Particular focus should be given to markets, but often CSOs lack the organisations, including the CBI and the developing the relationship between experience to make the most of these Institute of Directors, representatives of CSOs and: opportunities. The infrastructure and local chambers of commerce and Rotary - SMEs at the local level, working with mechanisms for enabling this to happen Clubs and some of the specialist community foundations and local need to be strengthened. intermediaries working in this field, to: support and development - Articulate the business case for organisations increased partnership between the - Companies working in the social sectors media and new technology field - Recommend ways of expanding, and and in the financial services industry. increasing awareness of the current Benefits: Potentially all CSOs. range of brokerage services

xi Executive Summary

4 The Government must also play its part

The Government must play its part by Investing in collaboration Developing the Government’s establishing a Restructuring Fund to If CSOs are to collaborate more closely in Big Society initiative promote greater collaboration and /or order to increase impact, achieve efficiency Small, local CSOs are the life blood of civil merger between CSOs, developing savings and become more sustainable, they society, but at the moment they are seeing small-grant programmes, as part of its are going to need help, both in terms of their grants being cut. Appropriate public Big Society initiative, and introducing independent support (facilitation, legal finance, including grants, is needed to help new approaches to commissioning, as advice, HR support) and investment in people help themselves; small, easy to well as setting up the Big Society Bank accommodation and new systems access, light-touch grant programmes, to shape the market for social (IT, accounting and communication). The which enable voluntary activity by all investment in the sector and lending its Modernisation Fund was an important first sections of the community to flourish, support to the Funding Commission’s step, which has been shown to have been must be an essential ingredient of the other recommendations. successful, but further one-off investment Government’s Big Society initiative. is required in order to achieve the benefits There are already a range of networks of increased collaboration. The and organisations that provide support Government’s consultation exercise on to local CSOs, but they need to be improving support for frontline CSOs and modernised and, in some cases, its reference to ‘an opportunity for strengthened; proposals for developing time-limited consolidation grants to enable the Big Society should work with the infrastructure to implement merger or grain of existing communities rather substantial collaboration’ indicates support than being imposed. for this approach.

minimum levels consistent with quality desirable standards and ensuring Recommendation 8 – standards. the best use is being made of ICT Restructuring Fund • NCVO, NAVCA and other relevant by infrastructure bodies and their national and regional/sub-regional service users infrastructure bodies should play a - Encouraging infrastructure bodies to The Government should establish a leadership role in helping to apply for support for developing merger Restructuring Fund: reconfigure the present pattern of or collaborative working • The Fund should continue for three years infrastructure through (e.g. shared support services) proposals and comprise £20m p.a. to fund one-off - Working with relevant government - Encouraging local government to support, legal costs and restructuring bodies and other key funders like BIG, at invest in these new structures in the costs. £5m of the Fund should be the national, regional and local level, to longer term. develop an agreed infrastructure earmarked for rationalising and/or Benefits: All CSOs and all infrastructure strategy restructuring national, regional and local bodies considering collaborative working or - Identifying areas where investment is infrastructure and, where necessary, merger. bringing provision in certain areas up to required to bring provision up to

grant programmes (building on the • Big Society initiatives should work Recommendation 9 – Government’s proposals for with existing generalist and specialist Big Society grants Communities First and the match- networks currently providing support funding of donations to local to individuals, and build links within endowments), administered by agencies and between communities. • Government should help build the with relevant expertise, to help people Benefits: Smaller, local CSOs. Big Society through allocating funds from a range of different communities for a series of small or micro light-touch to help themselves. xii Funding the Future Changing commissioning Contracts are becoming ever more risk- Developing a social investment market Although there have been some examples averse, detailed and bureaucratic, as well A discernible, if immature, social of good practice, the quality of most public as larger in volume and scale. Payment by investment market has developed in the sector commissioning is still very poor and results creates the need for working UK over the last 10 years, with the help of the procurement and contracting process capital, which currently only the largest government financial investment. A small, has been very damaging for many CSOs. CSOs have access to. but growing number of wealthy Furthermore, demographic changes and philanthropists have also actively All these factors mean that CSOs are not the financial outlook mean that the current supported efforts to supply investment having the opportunity to contribute as pattern of public sector services is now capital to CSOs. However, provision of effectively as they could to the delivery of unsustainable. so-called ‘impact-led capital’, where the more appropriate public services. The investor is seeking to generate social and There need to be radical changes to the way Government’s proposed £100m Transition environmental good alongside a range of that public services are commissioned and Fund provides a means of helping realise financial returns (from simply getting their procured; the current system does not this opportunity. money back to an above market return), is allow for the level of change needed. proving hard to attract to the sector. Outcome commissioning still tends to be about outcomes for existing services, rather than inviting providers to propose new ways for delivering a particular set of outcomes for a particular set of users. As a result, the service configuration remains broadly the same, rather than innovative solutions being developed in their place.

• Co-production and market shaping: • Trust-based commissioning: following Recommendation 10 – CSOs and service users should also be initial due diligence, the relationship Commissioning for involved in the planning, design and between commissioner and provider delivery of the service, including more should be based on trust, not the future self-help and voluntary action compliance, while ensuring new • Procurement: Service users, and the entrants can still get access; contracts • Outcome-based funding: All CSOs representing them, should be should set out what is to be achieved government funding should be directed involved in judging preferred tenders, (outcomes), not how to deliver services at achieving better outcomes for people provided they are not also part of the (process), and should be based on price, and communities, for example through system of provision not cost. • New structures: National and local greater use of social clauses and more Benefits: All CSOs involved, or potentially organisations, especially local pooling of funds. Service users and the involved, in contracting to provide public community groups, should form CSOs representing them should be services. involved in specifying user outcomes at coalitions to work with local people to the outset of commissioning develop new forms of services; social enterprises, including cooperatives formed by public sector staff should be encouraged

xiii Executive Summary

4 The Government must also play its part

The Government’s plans for the Big Supporting the Funding Society Bank are an important initiative in Commission’s other recommendations this field and must be used to help develop We have been very mindful of the the market further. At the same time, planned reductions in public expenditure in place-based budgeting and the Social formulating our recommendations and have Impact Bond have the potential, together, therefore only proposed two areas for direct to transform the financing of preventative government investment – the Restructuring services at the local level. Fund and the small-grant programmes. The overall costs and outcomes of our proposals We believe it is possible to attract an are summarised below. As can be seen, we additional £10bn of private investment believe they will not only help generate new into the civil society sector over the next income for the sector, but increase efficiency 10 years, provided the right financial and save money. We therefore ask the mechanisms are developed. The Big Government to lend its support to all our Society Bank has an important role to recommendations, which will help further play in achieving this. the Government’s stated aim of getting more resources into the sector, and, where appropriate, help persuade others to invest in them.

• Working with the Treasury, relevant - Social Impact Bonds within the context Recommendation 11 – financial institutions and sub-sector of place-based budgeting Attracting new private umbrella bodies to explore the potential - Community Share issues or Citylife for developing and, where necessary, style bonds for particular projects capital underwriting investment mechanisms • Earmarking a proportion of the resale of for particular types of service areas national bank shares into the BSB for use The Government should ensure that the (social and health care, prevention of in this way Big Society Bank (BSB) plays a lead role in reoffending, services for young people, • Capitalising a range of social attracting new private capital into the etc), including: investment agencies to invest in CSOs sector through: - Social Gilts to attract investors working in these service areas concerned with social impact (see Recommendation 6). - Social Investment Bonds for local areas Benefits: Any CSOs planning to provide or specific causes services and needing to develop capacity

to respond to these developing markets.

1 Increasing Impact Fund 7 Mutual benefit with the Recommendation 12 – commercial sector 2 Financial capability programmes Government 8 Restructuring Fund 3 Investment of trusts’ and endorsement foundations’ assets 9 Big Society grants 4 Good grant-making 10 Commissioning for the future The Government is asked to endorse all the recommendations in this report (listed 5 The Better Asking campaign 11 Attracting new private capital. below) and to work with NCVO and 6 Trading up Benefits: All CSOs. others in taking them forward: xiv Funding the Future Summary of costs and outcomes

The sponsor of the Funding Commission, Our provisional estimate is that an NCVO, has the overall responsibility, investment of £12.2m in working with others, for the follow-up on Recommendations 5, 6 and 7 could help this report. Details of lead responsibilities increase income to the sector from and the timeline for implementing our individual giving, trading and commercial recommendations are set out in the final sector donations from £20.7bn p.a. in section of this report. The total cost of all 2007/08 to £32bn p.a. by 2020. We also our recommendations, including the costs estimate that it should be possible to of the proposed funds, is provisionally attract an additional £10bn private estimated at £117.4m, to be met through a investment into the sector through the combination of voluntary, commercial and role we propose for the Big Society Bank in government funding. Recommendation 11. The balance of the investment we are proposing (£105.2m) in The costs and outcomes of our our other recommendations will have recommendations are analysed in the wider, harder to quantify benefits, report under four categories aimed at including increased capitalisation, increasing: investment and borrowing; reduced • income for the sector running costs and transaction costs; and • social investment in the sector increased impact for beneficiaries. • efficiency/reduced costs • wider social impact

xv Context 1

Funding the Future The Funding Commission’s remit

The Funding Commission was set up by the National Council for Voluntary Organisations (NCVO) in February 2009 to respond to the civil society sector’s concerns and uncertainty about funding over the next 10 years and to set a new funding agenda.

1 Part 1 Context

1.1 The Funding Commission’s remit

Our working definition of civil society NCVO estimates there are 900,000 civil follows that of the NCVO UK Civil Society society organisations (CSOs) in the UK Almanac1: ‘Civil society is about people with an income of £157bn. These include acting together, independently of the state 600,000 small, unincorporated ‘below the or the market, to make a positive radar’ organisations and 170,000 charities, difference to their lives and/or the lives of as well as trade unions, universities, others.’ Although often used to refer to churches, housing associations, the voluntary or third sector, it is much cooperatives and political parties. It is not wider, encompassing all forms of collective the role of this report to describe or action that are independent of celebrate the huge variety of the civil government and for public benefit. The society sector; the Funding Commission scale and scope of such action is highly has taken it as a given that a healthy and diverse, ranging from small informal flourishing civil society is something we groups to large multi-million pound should be striving to support and nurture. organisations.

Although the statistics used throughout Scope and definitions this report relate to the UK, the policy recommendations relate only to England; The Funding Commission wants to help the findings and recommendations in the ensure a better funding environment for report have not been discussed with the all CSOs, but its main focus is on charities, devolved administrations or with CSOs social enterprises and other voluntary and based in the rest of the UK. community groups, including ‘below the Following the practice of the Almanac, radar’ organisations. this report uses the term charities when Unless otherwise stated, the statistics referring to funding statistics, but, about funding income in the report are otherwise, uses the more generic term, from the NCVO Almanac 2010 and relate civil society organisations (CSOs). (See to charities’ income2 in 2007/08; they do website version Annexe 1 for further not include social enterprises that are not discussion of data sources.) registered charities. The statistics about individual giving are from NCVO/Charities Aid Foundation’s (CAF) report on UK Giving 20093 and relate to 2008/09. In both cases, the statistics do not reflect the full impact of the recession and public expenditure cuts.

2 Funding the Future 1.2 Future scenarios

The Commission considered the The Commission’s work has taken place at Predicting the future is a difficult task. In following questions: a pivotal time. After what has been 1990, would we have predicted the scale variously described as ‘the nice decade’ of growth in public sector contracts, the • What are the opportunities and and the ‘years of plenty’, we are about to development of face-to-face fundraising challenges for CSOs in relation to their witness the biggest cuts in public techniques and the introduction of the funding? In particular, what are the likely expenditure and the most radical changes National Lottery, all of which have had a implications of the new political and to public services, since the Second World major impact on the funding of the sector? financial environment facing the sector? War. An enhanced role is envisaged for Will social investment, social media and • What new sources and ways of funding CSOs, while cutbacks in their funding are social enterprise have a similar impact over could be developed? being announced every day. The outlook the next period – or will their potential • What are the alternatives to for voluntary funding is uncertain, as the significance turn out to have been conventional public sector funding? prospect of increased unemployment and exaggerated? • How can CSOs increase their own low economic growth make it difficult to effectiveness and make better use of predict individual and commercial support. existing resources to achieve their Taking a longer term perspective in this missions? context is challenging. • What changes to funding practice are required? How should the relationship between funder and funded be developed? • What new skills, models, tools or other forms of support are needed? In order to help us address these questions, we invited evidence, met with a range of interested parties and consulted on draft papers as they were being developed; we also consulted on our draft recommendations (see Annexes 1 and 2 for further details).

3 3 Part 1 Context

1.2 Future scenarios

There is an alternative which is to design How is our environment the future we want and work to make it going to change? happen. Of course, we must take account The Funding Commission has drawn of the context and the resources we have. on the work of NCVO’s Third Sector Moreover, the job is never done. We must Foresight Team and the Inquiry into the constantly scan the environment for new Future of Civil Society4 to help it identify developments and assess what they mean the main factors ahead. Five in particular for our organisations. Having the right kind stand out from this work: of people involved, especially people from • An ageing population diverse backgrounds and younger people, • A more diverse population will be an essential starting point. and household structure • Development of new technology • Climate change • Ethical consumerism and social values

La Piana Consulting5 in the US have • Technological advances abound: the rise • Interest in civic engagement and identified five trends which they believe of social media has challenged volunteerism is rising: in coming years, will reshape the sector; all of these nonprofits to embrace new ways of an unprecedented number of active resonate strongly with the trends connecting and communicating, retirees and a new generation of young identified by the Commission: demanding greater openness and professionals raised with community transparency. With the plethora of new service as part of their everyday life will • New definitions of participation: technology tools comes the need to create a pool of potential volunteers – a younger generations bring with them improve the organisational ability to tremendous opportunity for the sector, new values and expectations around choose effectively between them. but only if it learns to engage them work, activism and the use of • Networks enable work to be organised successfully. technology. This dynamic may challenge in new ways: working with and through • Sector boundaries are blurring: a the ability of non-profit organisations to networks is not new; however, with the sector-blind competitive environment is attract and provide a place for this new advent of new technologies and new emerging where Wall Street investment generation and to find meaningful norms for working collaboratively, the houses compete with local United Ways participation. potential impact of networks is and community foundations for donor increasing exponentially. directed funds and a growing emphasis on corporate social responsibility means that social virtue is no longer perceived as exclusive to the non-profit brand.

4 Funding the Future These long-term changes are taking place Under another scenario, instead of steady independently of government, although decline, it is possible to envisage a paradigm government policies and actions can affect shift through which the present pattern of the impact they have. Other more public services and models for delivery are immediate changes are the result of action radically altered through co-production by the new Coalition Government. Again, with service users. A new social contract is five stand out: developed, involving innovative partnerships between the public, • Public finance deficit reduction commercial and civil society sectors and • The Big Society new financing arrangements, including • Localism increased voluntary income. CSOs have • Reform of public services stepped up to the mark to realise their full • Transparency and accountability potential. Government investment and Our analysis of the risks and opportunities commercial sponsorship has helped CSOs these changes present to CSOs are listed do this. Local people and service users have in Table 1. See website version Annexe 2 played a central role in shaping the future. for further details. We are concerned that, despite the We see two possible scenarios for the rhetoric of the Big Society, we are period ahead. currently in danger of heading for the first, rather than the second scenario. Under one scenario, the present pattern of public services is cut to the bone, serving fewer and fewer people. Commercial organisations take over the running of many of the services that are left, working to narrow eligibility criteria under large- scale, performance-based contracts. The public sector protects its own. CSOs become hopelessly overstretched and unsustainable through reductions in their funding and an unrealistic assumption that voluntary effort and income can fill the gap left by the state’s withdrawal. Disadvantaged communities suffer most and inequalities increase , as the cuts in public services and welfare benefits begin to bite.

5 Part 1 Context

1.2 Future scenarios

Table 1 – Future changes: risks and opportunities ahead for CSOs

Changes Risks Opportunities

Ageing population • Costs of personal care lead to less giving • Over 65s give more • Babyboomers retire and leave legacies

More diverse • More complex dependencies – less giving • Motivation of immigrants to give back to host country population and • Fewer households with children lead to more giving household structure • Role for CSOs in promoting cohesion and engagement

Development of new • Some CSOs lack capacity to keep up • New ways of reaching young people technology • More ‘promiscuous’ givers • Can demonstrate impact directly • More individualism; less collectivism • Reduced barriers to entry • Focus on larger, more popular causes to exclusion • Easier marketing; consumers find you of most needy and smaller • Power is more diffuse

Climate change • Increase in cost of energy – and living – leads to • Increased concern about sustainable development less giving – more activism and giving, especially by young people

Ethical consumerism • Blurring of boundaries with other sectors – more • More altruism and philanthropy and social values competition • Social enterprises and CSOs thrive • Just a passing fad – consumers revert to cheapest • Companies look for mutual benefit, new option partnerships and ‘coopetition’ (cooperation/ competition)

Public finance deficit • More outsourcing to CSOs – seen as cheap option • More outsourcing to CSOs which demonstrate cost reduction • Low interest rates, higher unemployment, tax effectiveness increases, more charging and uncertainty – less giving • Higher taxes – more gift aid • Larger contracts and payment by results – private • Development of consortia. sector gain • More mergers and better subcontracting • Cuts in public sector grants and contracts, but arrangements increased needs

Big Society • No new funding, but higher expectations of role • New small grant programmes CSOs can play • Grassroots, locally based CSOs thrive • New social contract – voluntary substituting for • Increased activism and engagement statutory provision and employment

6 Funding the Future Table 1 – Future changes: risks and opportunities ahead for CSOs (continued)

Changes Risks Opportunities

Localism • National CSOs have to contract with multiple • Place based budgeting provides more funding commissioners for CSOs • Fewer national standards • Personalisation and individual budgets – increased • More power with less money role for CSOs • Insular attitudes – inequalities develop • Locally based CSOs thrive

Reform of public • Personalised services lead to loss of block • User led commissioning – more outsourcing to CSOs services contracts/need for new systems • Focus on preventative services – bigger role for CSOs • New relationships to form with new bodies • More partnerships and greater diversity of services e.g. GP commissioners • More charitisation – more competition • Restructuring turmoil – inward looking and protectionist

Transparency and • CSOs’ costs more scrutinised • Well run CSOs that can demonstrate accountability impact will thrive • More shared learning • More information – enhanced campaigning 

What kind of future do we want CSOs to have?

Effectiveness: We want to see an Activities: We want to see an Funders: We want to see an environment in which effective CSOs: environment in which CSOs undertake: environment in which funders are open • Put the interests of their beneficiaries • Campaigning (voice), research, self-help to new ideas and first at all times and development, as well as service • Recognise the diverse needs, capabilities • Are well governed and managed and are provision and life cycles of different types of more financially literate • Influencing and co-designing CSOs; avoid a ‘one size fits all’ mentality • Maintain their independence • Support and capacity-building • Have proportionate processes for • Make effective use of new technology • Appropriate scales of activity for funding applications and fund • Increase, and can demonstrate, their different purposes, e.g. at the management impact community, local, sub-regional, regional, • Provide the financial seedbed to support • Collaborate with others where national and international level new forms of voluntary action appropriate to fulfil their mission • Provide support for capacity-building and • Shape their own futures help CSOs to become better capitalised • Develop and use different types of • Provide different types of funding funding in the most effective way (‘giving, shopping and investing6’); using • Strengthen their balance sheets and grants when only grants will do have appropriate levels of reserves • Avoid unintended consequences; help promote sustainability and reduce volatility

7 Part 1 Context

1.3 Current funding patterns

Table 2 – Distribution of charities and their financial characteristics by size (2007/08)7

Micro Small Medium Large Major Total

Number of organisations 91,067 53,971 21,470 4,128 438 171,074 Proportion of organisations (%) 53.2 31.5 12.6 2.4 0.3 100 Total income (£ millions) 264 1,856 6,503 11,277 15,598 35,498 Proportion of income (%) 0.7 5.2 18.3 31.8 43.9 100 Mean income (£) 2,900 34,400 303,000 2,732,000 35,612,000 207,50 0 Median income (£) 2,800 26,700 230,000 1,951,000 19,126,000 8,700

Micro = Less than £10k income Small = £10k to £100k Medium = £100k to £1m Large = £1m to £10m Major = More than £10m

Breadth and variety Other important variables in the ecology Types of sector activity Table 2 shows that charities in the UK of the sector are the geographical scope of Table 3 shows that social services range from very small ‘micro’ charities general charities (from local community to organisations (of all sizes) make up the with an income of less than £10,000 (the international); their different structures largest sub-sector, with 33,000 majority) to a small number of major (e.g. federated/unified, membership/ organisations (19%), covering a wide range charities with an income of more than non-membership) and the extent to which of activities from care of the elderly to £10 million. they are led by their service users (e.g. services for blind people and including disabled people or people from particular organisations such as Age UK and local A small minority of organisations (0.3%) ethnic communities). lunch clubs. Culture and recreation receives 44% of the total income, while organisations are the second biggest 85% of micro and small charities receive category (22,400) including the Royal less than 6%. The 438 major charities Opera House and community theatres include such household names as Cancer and arts groups, followed by community UK, Oxfam and Barnardo’s, as well as development organisations (15,400), such some of the largest charitable trusts. In as Tower Hamlets Community Transport contrast, many of the smallest charities and local neighbourhood groups. Social are either very local – a neighbourhood services and culture and recreation also association, scout group or village hall, for lead the field in terms of income, followed example – or exist to meet a very specific by grant-making foundations and health. need or beneficiary group (or both).

8 Funding the Future Table 3 – Distribution of charities and their financial characteristics by area of activity (2007/08)8

Number of % of general Income Assets Mean organisations charities (£ millions) (£ millions) income (£)

Social services 32,870 19.2% 8,338.0 12,295.3 253,666 Culture and recreation 22,443 13.1% 3,647.5 6,054.5 162,521 Community development 15,352 9.0% 913.1 1,511.8 59,481 Religion 13,974 8.2% 1,705.4 5,590.5 122,040 Parent teacher associations 13,724 8.0% 180.7 171.1 13,167 Grant-making foundations 11,687 6.8% 3,444.6 28,397.1 294,740 Playgroups and nurseries 8,454 4.9% 407.0 164.7 48,146 Education 7,993 4.7% 1,312.8 2,642.8 164,245 Scout groups and youth clubs 6,911 4.0% 215.6 378.6 31,196 Health 6,470 3.8% 3,386.6 4,750.2 523,432 Village halls 5,970 3.5% 82.0 206.6 13,732 Environment 5,316 3.1% 2,382.1 4,248.9 448,091 International 4,857 2.8% 2,264.9 1,824.0 466,311 Law and advocacy 4,033 2.4% 1,077.3 629.3 267,126 Housing 3,963 2.3% 1,325.5 4,575.8 334,461 Research 3,688 2.2% 2,441.9 19,878.5 662,121 Employment and training 1,671 1.0% 1,197.6 691.9 716,707 Umbrella bodies 1,386 0.8% 602.9 620.0 434,985 Other 312 0.2% 572.5 1,999.0 1,835,076 Total 171,074 100.0% 35,498.0 96,630.6 207,501

9 Part 1 Context

1.3 Current funding patterns

Table 4 – Income for charities (2000/01 – 2007/08)

Income source 2000/01 20 07/0 8

£bn % £bn % Individual giving 5.5 21.8% 7.8 21.9% Trusts and foundations 1.4 5.7% 1.7 4.8% Commercial sector donations 1.0 3.9% 1.2 3.4% National Lottery 0.7 2.7% 0.5 1.5% Public sector 8.0 32.0% 12.8 36.1% Trading12 5.9 23.5% 8.3 23.4% Investments, dividends and rents 2.6 10.5% 3.2 9.0% Total 25.1 100.0% 35.5 100.0%

Funding sources • Public sector grants (£3.7bn) accounted • Individual giving, trusts and foundations, Charities are funded through for 29% of public sector funding, while other charities, commercial sector three main categories of income: contracts (£9.1bn) accounted for 71%; donations and public sector grants, i.e. but only 25% of charities (40,000) ‘gifted’ income, represented £14.9bn • Voluntary, non-statutory income, i.e. received this funding. This source of (42%). This can be restricted (i.e. given individual giving, trusts and foundations funding comprises central and local for a specific purpose) or unrestricted (including grant-making charities, such government and the NHS, as well as a (i.e. given for the general purposes of as Oxfam) and commercial sector grants range of quangos and other bodies; the the charity); in both cases, but especially (and gifts in kind) major part (52%) comes from local with unrestricted income, the charity is • Statutory income, i.e. public sector government able to use the money to pursue its own grants and contracts/fees and the • Public sector contracts/fees and trading agenda through developing new National Lottery on the open market (e.g. fees from activities, running campaigns or • Commercial income, i.e. trading on the individuals for services (including strengthening the organisation, rather open market and investments/ membership benefits), trading than having to sell a prescribed service. dividends/rents. subsidiaries, commercial sponsorship This is an important feature of both Table 4 shows the relative significance of and events), i.e. ‘earned’ income, independence and resilience. these different sources. The key points to represented £17.4bn (49%) of charities’ • Individual giving (£7.8bn) is by far the highlight are that in 2007/08: income (even though the general public biggest source of voluntary income10, still perceive charities as mainly relying but trusts and foundations and other • Public sector grants and contracts/fees on voluntary income) charities (£1.7bn) and commercial sector (£12.8bn) and trading on the open grants/gifts in kind (£1.2bn) are also market9 (£8.3bn) were the two biggest an important part of the funding sources of income, followed by mix. Legacies provided £2bn of individual giving (£7.8bn); together they individual giving. accounted for 79% of charities’ income

10 Funding the Future Cash is the most common way of giving There are different patterns of How are different types (48% of donors); direct debits are growing dependency for different sized of organisations funded? (currently 31% of donors), while cheque organisations: Overall, social services, culture and donations are reducing rapidly11. Web- recreation, grant-making and health get • Micro charities get 64% from individuals based payment channels, like JustGiving the biggest share (53%) of income (giving or purchasing) and small charities and PayPal, are growing fast, albeit from a (£18.2bn). These four, together with get 48%; 46% of micro and 48% of low base. religious causes, receive the greatest small charities get more than half their amount of money from individual In addition, charities will sometimes income from this source donations. Other points to highlight are: finance expenditure through borrowing • The biggest proportion of major or quasi-equity investment arrangements. charities’ income (38%) also comes • Employment and training charities The use of loan finance to fund from individuals, but they get a large receive 70% of their income from the development, particularly buildings, proportion (37%) from the public sector public sector and only 10% from has increased significantly in recent • Micro and small charities get 17% and individual donations and purchases years – from £1bn in 1994/95 to £2.9bn 13% of their income from internally • Research, international, environment in 2007/08. generated funds, such as interest on and religious organisations receive at cash held at the bank least 50% of their income from How are different sized • Medium charities get 35% of their individual giving organisations funded? income from the public sector; however, • Grant-making foundations and research As highlighted in Table 2, 438 major 51% of them get over half their public bodies receive 38% and 24% of their charities (= 0.3%) receive the biggest share sector funding from a single source. income from investments. (44%) of total income. Furthermore, they Furthermore, 22% of their income is receive the biggest share of each of the from public sector grants, rather than different types of income shown in Table contracts 4, apart from the National Lottery, where • Medium charities also get proportionally medium and large organisations receive less earned income from individuals higher shares. Large charities receive the than most other sized charities and less next biggest share of each type of income. legacy income The same pattern is repeated for medium, • Medium and micro charities get small and micro charities, with each getting proportionally more (2.7% and 2%) of more of each type of income than the next their income from the National Lottery, size down. than other sized charities • 42% of major charities and 40% of large charities get more than half their funding from the public sector • Most public sector income received by small charities comes from central government.

11 Part 1 Context

1.4 Funding trends and outlook

Table 4 shows that between 2000/01 Capital Funding outlook and 2007/08 charity income grew from The other main dimension of the financial Table 5 shows the risks and opportunities £25.1bn to £35.5bn. This growth is health of the sector is its level of assets and attached to each of the seven types of explained below: reserves, which are particularly important income listed in Table 4, together with indicators of resilience at times of financial borrowing. The funding sources with the Giving trends difficulties, as well as important most growth potential are: The UK Giving Survey for 200913 and the determinants of its ability to compete for Coutts Million Pound Donors Report14 • Individual giving and manage large scale contracts based on provide a more up-to-date picture of what • Commercial sector support payment by results. In 2007/08, total has happened to giving and philanthropy • Trading current expenditure amounted to 93% of since the start of the recession in 2008. • Borrowing total income, indicating that the sector is The UK Giving Survey estimated that a very vulnerable to fluctuations in income. The funding sources where there are total of £9.9bn was donated to charitable This is further illustrated by the sector’s opportunities for making better use of causes 15 in 2008/09; this was a reduction reserves position. existing or possibly reduced funding are: of 11% since the high of £11.2bn in 2007/08. The Coutts Report estimates • Trusts and foundations that a further £1.4bn was given by people • Public sector grants and contracts giving gifts of more than £1m (which was • National Lottery not captured in the UK Giving Survey’s • Investments, dividends and rent sample), bringing the overall total to £11.3bn. • Legacies (£2bn in 2007/08) increased Growth factors 30%, including a 10.3% increase since 2006/07. • Public sector grants and contracts/fees • All other types of funding have (£4.8bn growth), trading income increased with the exception of the (£2.4bn growth) and individual giving National Lottery, which has declined by (£2.3bn growth) account for nearly all £200m, initially because of reduced (£9.5bn) of the £10bn growth in charity sales of lottery tickets, but more recently income, since 2000/01. because of the ‘Olympics diversion’. • Public sector grants (£3.7bn in 2007/08) • Commercial sector donations have have decreased by £400m, while public almost doubled (from £610m to sector contracts (£9.1bn) have increased £1.2bn), with nearly all the increase by £5.1bn (128%). occurring in 2007/08. Part of this may • Earned income has increased by £7.5bn be because of firms deciding to donate (76%); the biggest element of this money (and time) to charities, rather increase is the £5.1bn growth in public than sponsoring/trading with them sector contracts and fees, but there has (a reduction of about £200m in trading also been a significant increase (41%) in also took place in 2007/08). More trading on the open market (from recent indications are that this source £5.9bn to £8.3bn), although since of income has declined significantly 2005/06 this trend has reversed. (by a third) since the recession. Nevertheless, charities have increasingly sought to expand their earned income in order to develop a more robust and sustainable range of funding streams.

12 Funding the Future • Despite a 37% decline in the overall Breakdown of giving wealth of the top 1,000 wealthy people, the value of million pound donations • 7% of donors (1.9m) gave >£100 per declined just 13% between 2006/07 month in 2008/09 – nearly half (49%) a n d 2 0 07/0 8 17. of total receipts. • Gift Aid was worth £891m to charities in • Although there was an 11% reduction in 2008/09; it is estimated that a further giving between 2007/08 and 2008/09, £742m is lost to the sector each year in the number of people who give was only unclaimed Gift Aid. down 2% and the median monthly donation remained relatively stable at £10 per donor (compared to £11 in 2007/08), illustrating that the sector is reliant on relatively few individuals for a disproportionate amount of its income. • Philanthropy is also very significant; in 2007/08, 189 people gave gifts of more than £1m totalling £1.4bn16.

• If the reserves of research, grant-making Assets and reserves foundations, housing and religious bodies are excluded, the sector has an • After allowing for liabilities such as average of only six months’ expenditure mortgages and pensions, charities have in reserves, with some sub-sectors such net assets of £96.6bn, equivalent to as playgroups and nurseries, umbrella around three times their expenditure bodies, employment and training and (an increase of 23% since 2000/01). international charities being particularly Grant-making foundations and research vulnerable. bodies hold most of these assets; overall • More than one third of charities have no around 300 organisations have 50% of reserves, while charities that receive these assets. public sector funding have an average • 80% of charities’ assets are fixed; the level of reserves of between one and remaining 20% are current. Assets can four months. be restricted or unrestricted; some may • A recent survey by the Charity be designated for specific purposes. Commission18 showed that in September Reserves are those parts of a charity’s 2009 10% of respondents had drawn on current assets that are freely available, their reserves, compared with 6% in but they should, in the first instance, March 2009. include cover for winding up costs if a charity is to be able to pass an audit solvency test.

13 Part 1 Context

1.4 Funding trends and outlook

Table 5 – Funding sources: risks and opportunities for CSOs

Type of Funding Risk Opportunity

Individual giving • Costs of care/more complex dependencies – • More social values – rich have more money to less giving give more • Higher cost of living, unemployment, increased • Increase in demographic groups likely to give tax and charges, uncertainty – less giving more • More competition and more ‘promiscuous’ • Social media – reach more people, especially donors – big get bigger at expense of others young Trusts and • Lower interest rates – less for grants • Source for capacity building and capitalisation foundations • More conservative approaches to grant-making • Social investment opportunities because of less money/greater need Commercial sector • Blurring of boundaries – competition rather • More social values – companies look for mutual support than support benefit, new partnerships and ‘coopetition’ • Recession – less CSR • Payback time for financial services Public sector grants • Larger contracts and payment by results – • User-led commissioning – more outsourcing and contracts private sector benefit • Place-based budgeting and social impact bonds • Grants and some contracts cut to fund preventative work • Substitution of voluntary for statutory • Development of consortia and sub-contracting • Multiple commissioners, restructuring turmoil standards and protectionism • New small grant programmes to support Big Society initiatives National Lottery • Changes in policy – 5% cap on admin and • Source for capacity building and infrastructure diversion to other Distributors – less engaged development grant-making and less money for CSOs funded by BIG Trading • Ethical consumerism and social values just a • Personalisation and individual budgets – new passing fad – consumers revert to cheapest markets option • Ethical consumerism – increased business • Recession – fewer sales, membership • Experimental charging by letting consumer subscriptions decide – increased income • Consumers find you more easily through new technology Investments, • Lower interest rates – less return, but higher • More social investment by grant-making dividends and rents inflation – higher costs foundations and research bodies – increased • Recession – lower dividends social impact • Falling property values – less rent • Economic recovery? Borrowing • Cuts and recession create uncertainty over • Philanthropists willing to invest for social impact financial return – less lending • Big Society Bank enables more borrowing to fund capital instead of using voluntary income – better use of resources

14 Funding the Future The ways in which CSOs themselves could Which organisations are likely to Charities that have a low level of reserves, Table 5 – Funding sources: risks and opportunities for CSOs improve their effectiveness and thereby be most vulnerable in the future? such as playgroups and nurseries (1.4 make better use of existing resources, If the £81bn cuts in public expenditure months), umbrella bodies (4.1 months), as well as helping them access new announced in October 2010 by the employment and training agencies (4.5 resources, are: Government were to be applied months) and international bodies (4.6 proportionally across all parts of the months) are also going to be less able to • Increasing and demonstrating impact sector, this could result in cuts of over absorb cuts in funding. • Increasing financial capability £3bn over the next five years, making • Making better use of social media and Charities and other CSOs relying on block the charities below especially vulnerable. technology contracts likely to be replaced by individual Although the compact for effective • Promoting the value of CSOs to budgets could be vulnerable unless they partnership between government and commissioners have repositioned themselves for this new the sector may influence the way in which • More and better collaborative working funding environment. these cuts are implemented, it will not • Developing sustainable and effective prevent them happening. Charities and other CSOs involved in voice infrastructure and campaigning work may find their work Micro and small charities could see a is deemed less important than direct- reduction in income from individuals, if service delivery, when funds are scarce, they are based in areas where even though this activity is an essential unemployment is likely to increase (e.g. as aspect of an independent civil society a consequence of public-expenditure cuts) sector. and giving to decline. Generally, we see a risk that larger, better resourced charities will grow at the expense of smaller ones, as they are better placed to take advantage of new opportunities and new approaches for securing income.

source and which operate at a county Charities vulnerable to or sub-regional level. public sector cuts • Employment and training charities receiving 70% of their income from the public sector. • Charities relying for more than 50% of • Umbrella bodies, especially those at the their funding from the public sector, local level, such as councils for voluntary especially through grants, rather than service, which depend on public sector contracts; for example, 23,000 charities funding for much of their income and rely on local government for more than have fewer opportunities for generating 50% of their funding. income, compared with front line • Any organisation that receives much of organisations. its income from regional government. • Arts and culture organisations • Medium-sized charities, especially those depending on the Arts Council and the (51%) that get more than half their successor to the Museum Libraries and public sector funding from a single Archives Council for core funding.

15 Increasing effectiveness 2

16 Funding the Future Civil society organisations must step up to the mark

CSOs must step up to the mark by increasing their impact, developing increased financial capability and making better use of social media and technology. They must get better at demonstrating their value to commissioners, working more collaboratively with each other and with other sectors and developing more sustainable and effective infrastructure arrangements.

17 Part 2 Increasing effectiveness

2.1 Increasing and demonstrating impact

There has been much rhetoric about the Outcome frameworks for different These frameworks would also need to importance of CSOs increasing and sub-sectors have been/are being embrace CSOs that are locality rather than demonstrating their impact (social, developed, e.g. for homelessness service focused. There is also a need to economic and environmental), but not (through the work of Triangle Consulting22, develop better measures of the value of a enough good practice. Thinking about, particularly in the context of Supporting healthy civil society as a whole and the measuring and reporting on impact needs People projects and infrastructure social capital it helps develop. to become part of the natural way CSOs organisations), for the well being of Communicating impact is also an essential do things, especially as service users and children and young people, and for prison aspect of increasing effectiveness. supporters become more demanding in visiting (through the work of NPC). Organisations like the Media Trust23 can their relationships with those they engage However, CSOs still tend to try to develop help CSOs ensure they are doing this in the with. CSOs can then learn how best to their own outcome frameworks rather best possible way. increase the difference they make for their than build on pre-existing models. beneficiaries. Ensuring current resources An initiative to work with (or, where are being used to maximum effect is just necessary, help develop) sub-sector ‘trade as important as trying to bring in new bodies’ to bring together a set of common resources. outcome frameworks across all the The Workforce Hub survey19 highlighted different parts of the sector would not ‘demonstrating value’ as an area where the only save fruitless invention, but would sector needs to improve. Most CSOs also have huge potential for shared accept this, but they need help in doing it. learning and knowledge management. A wide range of different methodologies Over time, it should then also be possible have been developed for measuring and to develop sets of costed outcomes for reporting on impact, notably by Charities particular types of interventions. Evaluation Services20 and New Philanthropy Capital (NPC)21. No single evaluation system will suit the huge diversity of the sector; what is important is that all CSOs give serious thought to the best system for their particular circumstances and then apply it consistently. The range of systems should include some that are very simple and light-touch.

18 Funding the Future 2.2 Increasing financial capability

CSOs urgently need to restructure to meet Although adept at squeezing out The survey carried out by the Workforce the coming financial environment, and to contributions to core costs from project Hub24 identified 20 skills gaps in charities take advantage of new opportunities, grants, most CSOs lack access to the kind and community and voluntary whether in public service delivery or in of capital the private sector uses to build organisations, eight of which relate to fundraising and campaigning. They must capacity, develop new services or cope business and financial skills. Increasing the achieve economies of scale and increase with unexpected events. They are often financial capability of the sector would help efficiencies. New opportunities to deliver criticised for spending money on it to take a more informed and mature view public services, with a much greater ‘administration’, or for maintaining of the needs and use of capital and thus give emphasis on payment by results and on reserves. In many cases reserves are held confidence to investors. personalisation and individual budgets, will simply to cover contingencies rather than Increased free reserves will be an indicator require providers to put money upfront. as a source of development capital. Many of a better-capitalised sector. The Funding CSOs that want to compete for contracts organisations lack the financial capability Commission’s aspiration is to see the will need access to a more mature social needed to differentiate between capital 2007/8 level of £16bn free reserves investment market, as well as the right set and revenue funding, or to understand (excluding grant-making, research, housing of skills and attitudes to risk. why both are needed. Poor financial and religious bodies) doubled by 2020. planning and an aversion to risk can also CSOs could achieve this level by mean a reluctance to seek investment in maintaining their 2007/08 surplus of the long-term health of the organisation. income over expenditure (£1.7bn) for each of the next 10 years. These CSOs would then, on average, have the equivalent of 12 months’ running costs, as opposed to their current six months’. To maintain an annual contribution to reserves, CSOs obviously need to earn more or spend less. We explore how both may be done and what contributions funders and commissioners can make in later sections of our report.

• Recognition of the concept of under- Case study capitalisation and the need to address it • Recognition of the range of financial Expanding the financial toolbox mechanisms other than grants that can The vision of Mission Models Money achieve capitalisation, e.g. use of loans (MMM)25 is to transform the way the arts and revenue (risk) sharing arrangements use their resources. The financial toolbox • Investment in building organisational helps creative practitioners and capacity to support delivery of organisations become more financially programmes and associated services resilient through: • Encouraging new forms of revenue generation through activities that contribute directly to mission (rather than subsidiary trading).

19 Part 2 Increasing effectiveness Making better use of social 2.3 media and technology

The rapid development of new There is growing interest in innovation in ICT will also have wider implications for mechanisms for giving, including PayPal, fundraising especially through the use of the way in which the sector accesses JustGiving and Localgiving, electronic information and communication information and the way in which others change systems and mobile phone apps technology (ICT). Commentators differ as access information about the sector. The like GetGiving – as well as the increased to how far they see ICT and social media development of ‘open data’ and greater opportunities for contacting people, the impacting on giving and asking, and how data sharing will provide both growth and availability of data and the far it will result in a net increase in opportunities and challenges for all types reduced entry and transaction costs donations, as opposed to simply replacing of CSOs in the years ahead. involved in using the technology – will all old technologies. Even so, new approaches have an increasing impact on individual are going to be necessary to ‘refresh the giving. Not only will they make giving ask’ in a contemporary form and there is a easier, but they also have major real opportunity to reach more young implications for the way organisations, people with these approaches. CSOs especially intermediaries, will have to therefore need to develop their operate in the future. understanding and awareness of these issues, so they can take full advantage of the opportunities which social media offer – and not get ‘left behind’.

BBC Children in Need also made extensive Shelter Case studies – social use of social media as ways of raising Shelter have had some great successes in media awareness of the appeal. They had 30,000 developing their databases through new Pudsey fans on Facebook and 5,000 products like ‘House Bling’ where people Twitter followers. They also asked four could decorate the outside of their house BBC Children in Need young people with very high YouTube with Christmas bling using Google In 2009, BBC Children in Need raised followings to put together a single using Streetview; they also ran ‘Strip for Shelter’ £39m – its highest total in real terms in the YouTube resources only, as a way of where people could decorate their house 30 years since it was launched. £14.6m was promoting Children in Need. In future, with their World Cup football team strip. raised through direct public donations, of they will further develop these plans which The challenge is then how to convert these which, for the first time, £1.5m was raised may include identifying supporters with people into becoming supporters. through 300,000 text donations of £5 lots of Twitter followers to help them each. David Ramsden, CEO, says this recommend and promote the appeal. undoubtedly included a lot of younger people giving for the first time. Beat Bullying According to Sarah Dyer, Director of Following pressure from Comic Relief and Digital Marketing for Beat Bullying, the substantial persuasion, the phone more you engage with people on-line, the companies agreed to waive all their more you can engage with them off-line, charges. The call to action was set at £5 e.g. by getting them to fundraise for you because a high proportion of mobile and, at a later stage in their life, getting phone users are on pay as you go and their them on to the donor database. average level of credit is small; however, a number of multiple donations of £5 were made and in 2011 there is likely to be the option to donate £1, £5 or £10.

20 Funding the Future Promoting the value of 2.4 CSOs to commissioners

As the pace of these developments With major upheavals in public services in The forthcoming Decentralisation and accelerates, CSOs will need to ensure they prospect, CSOs will need to become much Localism Bill is expected to provide new keep up and take advantage of the more assertive and confident about what opportunities for CSOs through the right opportunities they present. Engaging they can bring to the table. By focusing to bid to run public services and the young staff and volunteers in helping more on their impact, they will be better increased opportunities for local people to develop these approaches will be placed to promote their services to challenge current approaches to service important, but there will be an important commissioners, but they also need to provision. The Spending Review also says capacity-building requirement to address. demonstrate their ability to engage users that the Government will consider setting in the commissioning process and to the proportions of specific services that The following issues need to be considered: develop new models of service delivery, should be delivered by non-state • Increasing numbers of young people as well as bringing added value through providers, such as CSOs. This approach likely to be giving through ICT involving volunteers, leveraging extra will be explored in relation to a range of • Fewer barriers for donors to overcome; resources and increasing social capital. At services, including adult social care, early more personalised approach the same time, commissioners need to years, community health services, youth • Volatility and globalisation of giving; develop processes which embrace these services and early interventions for the interest in issues, not organisations opportunities. neediest families. It may take time for • Interest in volunteering/campaigning, these changes to take full effect, but CSOs alongside donating; communities of should gear up to take advantage of them. interest • Importance of donors seeing impact and communicating with those they support • Direct giving to projects; potential disintermediation of charities • Virtually no transaction costs • Reduced control of brand and communication by charities • Implications for fundraisers and investment advisers • Need for trustees and CEOs to understand the potential and implications of ICT for fundraising.

21 Part 2 Increasing effectiveness More and better 2.5 collaborative working

Better collaboration between CSOs, Yet, in any effort to cut out wasted effort Mergers are often attractive to funders, including mergers where appropriate, can and resource, we must acknowledge the but they are not always the most lead to increased impact for beneficiaries motivations that lead people to set up or appropriate option, particularly where through better and more accessible become involved in charities and voluntary there are differences in values or priorities; services and a stronger campaigning voice, groups in the first place, the variety of in these situations, formal collaborations as well as increased efficiency through needs they are seeking to address and the can sometimes be the best way of economies of scale, shared back-office social capital and personal development achieving economies and efficiencies. functions and reduced duplication. that can result. Nevertheless, while acknowledging this and recognising the advantages to civil Donors and funders sometimes complain It is also important that larger CSOs society of CSO variety, merger can make about what they perceive to be a lack of recognise and respect the particular sense when there is a shared purpose and collaboration between some CSOs. The contribution that more specialist, often set of activities. sector has sought to develop greater user-led CSOs with a particular equalities collaboration in a number of ways, including: perspective, have to make to addressing Public expenditure cuts are likely to needs and that they develop ways of provide an added impetus to mergers. • Coalitions for campaigning on issues of partnership working, which ensure this There is a danger both for funders and for shared concern value is sustained. National charities can the sector that cuts are applied without • Sub-sector umbrella bodies for play an important role in helping smaller sufficient strategic planning and that CSOs discussing common issues, representing CSOs develop, whether through federated become inward looking and concentrated common interests, providing support or branch structures, through partnerships on simple organisational survival. Instead, • Joint projects between organisations or through widening the role of some of funders need to think about the results working in the same field their facilities, such as charity shops, which they seek and CSOs need to think about • Consortia for bidding for contracts, could be an invaluable source of support how best to structure and present their e.g. 3SC, the third sector consortium for many community groups. own qualities of delivery. Unless the sector developed by the Social Investment takes an active approach on this issue, it Business Collaborative working with the will find funders effectively making • National organisations working in commercial sector and with spin-outs decisions for them, which may not always partnership with local organisations from the public sector is becoming more be in their or beneficiaries’ best interests. • Sharing support services and back-office common, particularly when tendering for functions, including shared technology larger contracts. In these situations, all All those who have been involved in platforms both for internal use and for partners should be signatories to the mergers know that they require time and fundraising contract and we would support the resources to be successfully managed. • Mergers between organisations working introduction of the Merlin standards code They have one-off costs which can be in the same field, e.g. Royal National of good conduct developed by the difficult to finance from low or non- Institute for Blind People and Action for Department for Work and Pensions for existent reserves. The Commission is Blind People, involving different models, contractors to ensure good practice concerned that sources for this sort of including group structures, takeovers towards CSO sub-contractors (see 5.5). support, like the now closed and formation of new merged Modernisation Fund or Capacitybuilders, organisations. have ended.

22 Funding the Future • CAN Advise helps with all stages of Sheltering Case studies of 27 26 property negotiation; leasing or buying a The Tides Foundation in the US supports collaborative working property community groups and start-up charities • CAN Manage uses the expertise from through what is described as ‘fiscal CAN Mezzanine to provide bespoke sponsorship’. This provides a formal CAN Mezzanine facilities management packages, governance structure under which advisory CAN is a registered charity working as a improving building efficiencies and groups for new projects can sit, a charity social enterprise, formerly known as providing practical solutions number that can ensure tax relief for Community Action Network. CAN • CAN Develop helps CSOs build and emerging groups, and a range of HR, Mezzanine is an award-winning, self- develop their own property. finance and IT services which are sustaining social enterprise providing charged for. space in different office locations, services and products to CSOs. CAN believes that A Housing Association in the East social enterprises create greater Midlands is planning to launch a fiscal community cohesion building a sense of sponsorship scheme for community local pride and ownership. Encouraging a groups in its area in the near future. This belief in positive action in the communities is also a model which local councils for they serve, reaching the most vulnerable voluntary services have operated. people in society in imaginative, entrepreneurial ways. In addition to shared office space CAN provides a range of property services:

Developing sustainable 2.6 and effective infrastructure

There is currently a complex set of The roles of all these different agencies All CSOs need support to help them infrastructure arrangements for the include one or more (or all) of the following: develop and to enable them to deliver sector at national, regional and local their mission as effectively as possible. • Voice – representing the views of their level, which is not always easy to navigate, These agencies are therefore especially local members to government and others variably funded and with somewhat important for those CSOs without the • Development – helping new initiatives uneven quality and coverage. There are resources to pay for their own support; develop and new organisations form at least 75 different national infrastructure they also help ensure better coordination • Support – providing advice and organisations (or similar), most of which, and communication within the sector and information on the local policy up to now, have received government with others. environment and on all aspects of funding. There are also regional and local running and managing the kinds of CSO infrastructure bodies, which also rely on they work with, including recruiting the public sector for much of their funding. volunteers and accessing funding • Coordinating – enabling local members to work together.

23 Part 2 Increasing effectiveness Developing sustainable and 2.6 effective infrastrucure

All these agencies have been created to NAVCA, itself an infrastructure body, The future of local infrastructure serve identified needs at various times, now refers to local infrastructure bodies The government’s plans for the Big Society both specialist and generic. Some have as local support and development and for public sector employees running been essential conduits between the organisations (LSDOs). A number of these services themselves appear to recognise sector and government, national, regional LSDOs have begun to merge or that there will be a need for a range of and local. But some of the needs have collaborate more formally, with a view to support if their ambition is to be realised. changed or are about to. Many increasing their effectiveness, achieving NAVCA’s own research shows that where organisations have recognised the need economies of scale and increasing their there has been consistent investment by for change and have begun to act. resilience. The most recent survey carried local government in LSDOs, those out by Capacitybuilders28 found that over authorities also tend to have high scores The present configuration of half of those LSDOs responding were for national indicators for a thriving sector infrastructure, at the national, regional and considering or taking action in relation to and increased volunteering30. local level, is unsustainable and, in places, a merger or partnership and that many incomplete. A concerted programme of commissioners are supportive of these mergers and other forms of formalised developments. collaborative working is required. This needs to take account of different local circumstances – one size will not fit all – as well as ensuring that the linkages between different levels of infrastructure are more fully developed, taking full advantage of new technology.

• Promoting a consistent approach to Case study of service-delivery across the county collaboration • Providing greater representation of volunteering on countywide bodies • Joining up delivery of services to ensure Volunteer Centres Derbyshire effective use of resources Volunteer Centres Derbyshire (VCD) is the • Offering a single point of contact to network of independent organisations that statutory partners around volunteering provides volunteer management support • Reaching into different sectors, e.g. to frontline groups in Derbyshire. sport, environment, children’s services. Coordinated by a countywide staff team hosted by the local centres, VCD shows Maintaining the independence of how an informal network structure can individual VCD members has ensured that meet the needs of both county and local knowledge and expertise is retained, cross-district organisations. but delivered in a more consistent and coordinated way. Successes include: Source: Volunteering England UK29. • Securing countywide funding to deliver projects to support volunteering • Promoting the volunteer centre brand across the county

24 Funding the Future There are two main schools of thought on • A demand-led approach whereby In the Commission’s view, what is required how best to provide and finance this individual CSOs purchase services to is a mixed economy combining the best support: meet their particular needs. Its main features of the supply and demand-led problem is that those CSOs which most approaches and with fewer LSDOs overall. • The current supply-led approach need support are least likely to have the whereby infrastructure bodies provide Although statutory agencies, such as resources to pay for it. Building these support services, largely paid for by Business Links, may occasionally prove to costs into funding arrangements is one national or local government and other be a useful source of advice for LSDOs, approach and the voucher system used funders. Its main problem, apart from there is a strong consensus that, despite by Capacitybuilders for the cost, is that the supply may not match different government initiatives over the Modernisation Fund is another. the market requirements. For example, years, they do not understand or meet the However, the number of CSOs that can business advice can often be at too needs of CSOs. The planned closure of be provided with vouchers will general a level. At the same time, there is Business Links now provides an necessarily be limited, and there must a need for generic support, especially for opportunity to develop a voucher-based be a diagnostic process for establishing those without the resources to pay for it approach to providing business support what kind of support is actually needed, or without an understanding of what (see 4.2). particularly for less experienced CSOs. they may need at different stages of At the same time, there is evidence that development. well targeted support could be effective.

Administrative staff freed up by the a local social enterprise about expanding Case studies of merger were recruited internally to more the range of services that could be offered collaboration frontline posts, receiving training to ensure to meet the needs of organisations in their they had the skills to provide support to area. The collaboration eventually led to CSOs. In some CVS the balance between the establishment of a new HR support Supply-led approach: Warwickshire frontline and back-office staff had been and training company by Voluntary Community and Voluntary Action 40:60 prior to the merger; in WCAVA the Norfolk who acquired the existing Warwickshire Community and Voluntary balance is now 80:20. As a result, some business and staff of the social enterprise. Action (WCAVA) was formed in April districts have benefited from an increase In response to emerging needs within the 2008 from a merger of three district- in the numbers of frontline staff based in sector, especially amongst voluntary based CVS and two volunteer centres, their district.’ with an additional CVS joining in March organisations facing funding cuts, the 2009. The merger, part-funded by ‘At least two of the district CVS were range of services which are provided on a Capacitybuilders, has created an facing serious financial instability if they direct paid-for basis have been expanded; organisation that is more financially didn’t merge, and all of the CVS had faced including most recently a joint venture sustainable than the separate CVS and long-term risks to their core grant funding. with a leading employment law practice to volunteer centre structure it replaced. The merger has helped these CVS stabilise provide a complete service from advice on They believe it has brought efficiencies their finances.’ HR policies through to employment tribunal representation if required. without losing local presence: Demand-led approach: ‘The merger brought efficiency savings by Voluntary Norfolk Source: NAVCA31 and Voluntary Norfolk. centralising back-office functions, which Responding to concerns within the local has reduced duplication of roles in voluntary sector about the difficulties of administration and management. This has securing access to affordable good quality allowed WCAVA to shift staff resources HR advice and support as well as training, from back-office to frontline services. Voluntary Norfolk began discussions with

25 Part 2 Increasing effectiveness Developing sustainable and 2.6 effective infrastructure

The future of national and regional – Between county organisation and infrastructure Future local rural community councils. At the national level, key sector bodies need infrastructure scenarios – Between independent volunteer to work with government to review which centres and generic organisations of the national infrastructure organisations serving the same area. might most usefully collaborate or merge, Background: – Between organisations in unitary especially bearing in mind the Office for • The Funding Commission commissioned authorities created in 2009. Civil Society’s stated intention of only NAVCA to estimate the potential • The potential financial implications of funding 15 Strategic Partners. savings that might result from different mergers in these four areas need to be The future of regional organisations is very future configurations of local assessed on a case by case basis, but the uncertain, particularly bearing in mind the infrastructure. indications are that savings could be achieved. At the same time, investment future regional government arrangements NAVCA’s conclusions were: envisaged by the Government. It seems would be needed to enable mergers to unlikely that this tier of infrastructure will • There is significant merit in action being happen and to address current under- survive apart from in the most deprived taken to encourage discussion about provision. regions and in the big cities. The most mergers and collaborations between • Further work should be undertaken to likely model in many areas will be for the LSDOs in four key areas: map the potential for the integration of LSDOs to collaborate to provide a regional – Within two-tier authorities, especially specialist organisations into more or sub-regional perspective and, where when there are a lot of small, poorly generic bodies. appropriate, to act as an intermediary funded organisations. Source: NAVCA32. between national and local structures. Investment The Government’s consultation paper on Supporting a Stronger Civil Society (Cabinet Office, Office for Civil Society, Oct 2010) states (page 10) ‘there is a strong case for rationalisation of support services at a local and national level’.This restructuring will require investment. In particular, funding will be required to help trustees develop merger plans, pay for independent advice and meet one-off implementation costs. Over time, these plans should enable services to be developed and savings to be achieved. However, future funding arrangements must ensure they do not disincentivise restructuring through fear of funding reductions being made if two or more organisations decide to merge or collaborate in some way.

26 Funding the Future 27 Using existing resources 3

28 Funding the Future Funders and commissioners of public services must make better use of current resources

Funders and commissioners must make the most of their current resources by helping CSOs learn how to increase their impact, helping CSOs increase their financial capability, and making the most of their own assets, as well as practising good grant-making.

29 Part 3 Using existing resources

3.1 Helping increase impact

CSOs should be continually looking to see The Big Lottery Fund (BIG), which provides how they can increase their impact, but the major part of the Lottery funding funders have an important role in helping received by the sector, has played an them do this and in promoting good important role in building its capacity and practice and learning between CSOs. The in promoting good practice in grant-making better CSOs become at communicating through mechanisms like the Intelligent their impact, the better they will be able to Funding Forum (IFF). This role could promote themselves to other funders, become even more important if funding supporters and commissioners. for infrastructure and for support services from other sources, such as Capacitybuilders and central and local government more generally, comes to an end or reduces significantly. We therefore recommend that BIG and other members of the IFF play a lead role in working with the sector to help it get better at developing, measuring and reporting its impact.

- Help individual CSOs or groups of - Stimulating the potential of open data Recommendation 1 – CSOs working in the same sub-sector to produce a virtual knowledge bank of Increasing Impact Fund to develop the systems and expertise those CSO interventions that deliver to measure their impact the most impact - Build up expertise across the sector • CSOs should subsequently be • BIG and other major funders involved in as a whole expected to: the Intelligent Funding Forum should • One of the priorities of the Fund should - Publish impact assessments and work with sub-sector umbrella bodies to be to choose or, where necessary, evaluations in their Annual Reports and set up an Increasing Impact Fund, develop a series of common frameworks Summary Information Returns and on comprising £5m p.a. for three years, to: comprising outcomes for different their websites - Build on, develop and disseminate sub-sectors (including equalities), - Share learning (failures as well as examples of different types of good working in conjunction with relevant successes) with other CSOs in the practice in developing, measuring and sub-sector umbrella groups. Using this same sub-sector. reporting on their social, economic and outcomes framework, all funders should Benefits: All CSOs, especially those environmental impact give priority to: without the capacity or the resources - Developing a shared evidence base to invest in improving their impact. - Encouraging shared learning

30 Funding the Future 3.2 Helping increase CSOs’ financial capability

Funders can increase their own impact by • The Charity Finance Directors Group helping increase CSOs’ financial capability. Recommendation 2 should work with NCVO, the National Over time, this will help CSOs become less – Financial capability Association for Voluntary and risk averse, make better use of different Community Action (NAVCA), ACEVO, types of finance and, as a result, become programmes Skills – Third Sector and business better capitalised and more resilient. We schools and training providers, to build therefore recommend that the Charity • Funders, including the financial services on and develop the financial literacy Finance Directors Group work with industry, should recognise the programmes currently available for funders and other relevant agencies to importance of CSOs increasing their sector chairs, treasurers, chief increase the sector’s financial capability. financial capability and provide finance executives and directors of finance to promote this (or their equivalents). Benefits: All CSOs with resources.

3.3 Making the most of funders’ assets

Funders have a range of different assets However, the best example of where A small number of trusts and foundations which could be used to benefit, and funders’ assets could be used more for are already pursuing social investment potentially strengthen CSOs. For example, public benefit are trusts and foundations; policies by looking at a range of ways their local authorities have community buildings these cover a wide range of different types investments can help promote their which are often not being fully used; the of organisation, including endowed charitable objects and enable their funds transfer of community assets initiative and foundations, community foundations and to go further. They can also help capitalise the proposals for a right to buy in the benevolent societies, which between them the CSOs they support. The two main forthcoming Decentralisation and hold assets of around £63bn. Most of issues for endowed foundations are: Localism Bill are aimed at making better these assets are concentrated in a • What proportion of the capital use of these, including greater use by relatively small number of organisations. endowment should be spent on grants CSOs. Housing associations may also be a All trusts and foundations, of whatever (or loans) each year (if the trust deed potential source of support in these kind type, are required to demonstrate that permits use of capital) of transfers. Pro bono initiatives are they are using their funds to achieve public • How far to use the capital endowment another type of resource that can be used benefit and their trustees have a duty to for social as well as financial return. to benefit CSOs; the government’s plan report on how they do this. for all civil servants to do six days’ volunteering per year is intended to promote this.

31 Part 3 Using existing resources

3.3 Making the most of funders’ assets

‘Social investment’ is used to describe a Many trustees still appear to believe that Most outsource the management of their number of different ways of investing their primary responsibility is to maximise investment portfolio to investment capital including those that: financial return, despite the guidance from managers, working to an agreed asset- • Support the common good, i.e. avoiding the Charity Commission, which recognises management strategy. In the UK, at ‘sin stocks’ (negative screening) the scope for a ‘blended value’ approach. present, most investment managers are • Are consistent with the charity’s We welcome the steps being taken by the unwilling to investigate social venture purposes, i.e. avoiding investments that Charity Commission to issue more positive capital and other forms of unlisted are counter to the charity’s mission and guidance and would encourage the investment. finding investments that help promote it Commission to show leadership on this If the organisation is to consider social (positive screening) issue. We also recommend that the Big investment, it is important that all the • Directly support the work of CSOs that Society Bank develops guarantee schemes trustees, and not just those thought promote the charity’s mission. to help incentivise more social investment experts by their peers, engage in the by trusts and foundations (see Use of trust funds for social investment is debate about how best to approach it. ACF Recommendation 11). still not common, though examples in the has issued guidance notes and has been US are encouraging experiment in the UK. The Funding Commission’s view, running seminars with CCLA Investment Decisions about investing and spending supported by the Association of Charitable Management Limited on effective need to be taken as part of a trust’s or Foundations (ACF), is that some trustees endowment management in order to foundation’s overall strategy for pursuing do not engage sufficiently in investment increase trustee knowledge and its mission, not least because a decision to performance and do not sufficiently confidence in this area. We recommend do more social investment could increase consider alternative uses of their capital. that this work is developed further. Our or decrease the amount of funding Recommendation 2 for financial capability available to make grants, as well as programmes is also relevant to this area. potentially increasing impact. Engagement with these issues is an important part of the governance of the organisation, but is not always fully discussed.

• The sector needs better data on current Recommendation 3 – trusts’ and foundations’ social Investment of trusts’ investment practice to help inform the development of initiatives for and foundations’ assets capitalising the sector. The Association of Charitable Foundations (ACF) should • Trustees should consider whether social secure resources to undertake a survey investment is an appropriate route to of members’ approaches and attitudes achieving their charitable objectives, towards social investment and develop while also taking account of issues of risk further guidance on these issues in the and flexibility and potential implications light of this survey. for grant budgets Benefits: Potentially benefits all CSOs with • Boards of trusts and foundations should resources. regularly review whether they have the right range of skills and expertise for effective governance, including oversight of investment strategy

32 Funding the Future 3.4 Promoting good grant-making

Grant-making practice has improved The world of trusts and foundations is Some, but not all, larger trusts and considerably in recent years, but there are sometimes described as a series of cottage foundations have well-developed still examples of funders who will only fund industries – each fiercely independent and strategies for using their funds; however, short-term or innovative projects, have idiosyncratic and sometimes resistant to good practice could be further developed unrealistic expectations of what can be change. However, increasingly there seems and disseminated more widely. Strategies achieved and fail to recognise the full costs to be interest in discussing and sharing could include ways of helping CSOs access involved in delivering particular outcomes. good practice and strategy, particularly development and working capital, e.g. Equally, funders’ processes can sometimes under the auspices of ACF, as well as more through using part of their grants budget be disproportionately complex and result specialist groupings, such as the for loans, quasi-equity and patient capital in unnecessarily high transaction costs. Environmental Funders Network. The – this could also have the added benefit of importance of trust income to the sector making their funding go further. Public sector cannot be stressed too strongly; as one The public sector is by far the largest interviewee said: ‘Thank goodness for provider of grants to charities (£3.7bn in trusts and foundations.’ In view of their 2007/08), but, as indicated in Section 1, importance, it is surprising how little data this funding source is now reducing and is we have about how they use their funds. expected to decline significantly as a result of the public expenditure cuts. Trusts and foundations Trusts and foundations provide funding Improving funders’ • Funded organisations can adopt ways of to charities (totalling £1.7bn in 2007/08) working and ‘relationship building’ with which is: practices their funders (of all kinds) and of reporting to them which are more • Independent transparent and which will help with • Potentially long term • Small changes to a funder’s such transformation. • More free than government or Lottery administrative procedures (e.g. making • Both ‘sides’ can adopt a more patient funding from pressures of public and payments in advance, making payments and long-term approach to what they media scrutiny in full without retentions, imposing less are trying to see achieved. This may • Therefore, able to take more risks, compliance focused restrictions) may involve building a CSO’s capacity so it is support more innovation and fund work ease transaction management burdens, better placed to undertake the task that may be unpopular and especially on smaller and financially which both aspire to see tackled. • Therefore, particularly important to weaker organisations, and will also be a • Funded organisations within a single those people that are furthest from tangible demonstration of greater trust funding programme can also collaborate mainstream concerns by the funder in the funded. with each other and with the common • Responsive to the organisational needs • Funders can also engage directly with funder so that all learn from each other’s of charities; for example, funding for funded organisations when reviewing experience. organisational development was their own practice – the consumer • Organisations that provide information pioneered within the trusts and perspective is likely to provide especially and guidance to CSOs seeking funds can foundations world. important learning (see consumer help them develop ways of preparing perception reports promoted by the and communicating financial and Centre for Effective Philanthropy in organisational plans that will assist the US). funders that wish to follow Joseph Rowntree’s entreaty that funders should always try to ‘strengthen the hands of those that do’. Source: David Carrington33.

33 Part 3 Using existing resources

3.4 Promoting good grant-making

Trusts and foundations also make difficult The Commission would like to encourage National Lottery balancing decisions about the approach ACF to work with the larger trusts and Lottery funding provided £523m to and focus of their grant-making. These foundations to develop a framework for a charities (= around 38% of total Lottery- include balancing the interests of future funding strategy, which could be adapted distributed funds). Although this generations of potential beneficiaries to suit different circumstances. It would represents a small part (1.5%) of the against those of present generations. address such issues as responsibilities to sector’s overall funding, many CSOs see it Such choices and decisions will require the future, support for innovation versus as a key element, particularly for funding considerable debate and heart searching sustaining existing organisations and new and innovative projects or causes by the trustees and staff, especially in the working on causes/symptoms of social ills. that may otherwise have difficulty in current financial environment. In order to attracting funds. BIG is currently the only steer through them all, they need a solid Lottery Distributor that publishes details and challenging strategic plan informed of how much of its funding goes to CSOs. by common goals and values and a framework for making and sticking to hard choices.

Three barriers to overcome are the Case study – Refugee need for: and Migrant Justice • A well-developed business plan to put (RMJ) to potential investors when asking for working capital • Effective financial reporting and A change in the Legal Services Commission invoicing to support payment claims funding model meant that service • Finance to meet the interest payments providers were only paid when cases were involved. closed. As a result, the charity, Refugee and Migrant Justice, suffered severe cash flow The trusts recognise the risks of being put problems due to the length and in the position of helping organisations complexity of its cases – and these deal with the consequences of problems recently contributed to its government funding arrangements. closure. However, by bringing expertise and some, limited, funding to the table in the short A group of foundations are in the early term, they can help CSOs find a way stages of exploring options for addressing through these complex challenges. the need for working capital which this funding model necessitates. In the medium term, they feel that the funder purchasing a service should be responsible for providing the necessary cash flow. The trusts are also, therefore, in discussions about this with the Ministry of Justice and the Legal Services Commission. Source: Interview with Matthew Smerdon, Baring Foundation

34 Funding the Future The Government proposes to alter the It is particularly important that funders like At the other end of the spectrum, it is very percentage of Lottery yield going to BIG trusts and foundations and the National important that all types of grant-makers and to restrict the administration costs of Lottery take full account of changes in the consider having some small grant all the Lottery distributors to 5% of funds wider funding environment, which might programmes to help local, community distributed (from a current 7.5%). While disproportionately impact on, say, groups develop their potential. Some of recognising the need for all funders to unpopular causes, equalities groups or this funding could also be provided keep their administrative costs low, the other disadvantaged groups. There is also through micro loans and through the Commission shares the view that going to be an important role for grant- development of endowments. We restriction of the distributors’ makers in helping, and encouraging, welcome the Big Local Trust programme administration costs to an arbitrary CSOs to increase their effectiveness, being developed by BIG. percentage would be a false economy, including collaborative working. This will limiting their ability to make informed require extensive information sharing grants and offer support to realise the between funders. desired outcomes.

• All funders, including local authorities Recommendation 4 – and parish councils, should consider Good grant-making having some light-touch, small grant programmes, targeted at local community groups • ACF should identify good practice in • All funders should ensure their grant-making and promote this more application and monitoring processes widely (as part of the survey in are proportionate and should keep their Recommendation 3) transaction costs to an appropriate level • NCVO, CAF and ACF should work for achieving their particular aims. together to improve the quality of data about trusts and foundations and other Benefits: All CSOs applying for grants funding sources, making full use of the potential of ICT in this field • All types of grant funders, including Research Councils, should share knowledge and information, through funder forums and other networks, about which interventions work best

35 Part 3 Using existing resources

3.5 Other actions

We also support the following initiatives which would complement the recommendations in this Section: • Revised version of CC 14 Guidance on social investment (being prepared by the Charity Commission) • Further development of transfer of community assets (as proposed by the Development Trust Association) • New models for financing working capital (as being developed by the Baring Foundation and others – see RMJ case study in 3.4 above) • Opposition to the imposition of a 5% maximum on Lottery administrative costs • Publishing details of how much funding Lottery Distributors give to CSOs, including the amounts they allocate to smaller, local community groups, so this can be kept under review • Development of the Big Local grant programme by BIG.

36 Funding the Future 3.6 Ensuring all types of CSO benefit

The Increasing Impact Fund and the financial capability programmes both apply to the full range of CSOs. The funders of these initiatives, such as BIG, trusts and foundations and the financial services industry should ensure that the programmes are designed in ways that can be easily accessed by the different parts of the sector. Investment of trusts’ and foundations’ assets and promoting good grant-making practice should include recognising ways in which they can help build up the reserves of all types of charities, apart perhaps from the very smallest, through their approach to grant-making. The survey of ACF’s members’ practices will help identify good examples of how best to do this. The call for ensuring a range of light-touch, small-grant programmes, will particularly benefit smaller local CSOs.

37 Increasing income 4

38 Funding the Future NCVO must work with other infrastructure bodies to increase the sector’s income

NCVO must work with others in the sector to secure resources for initiatives aimed at increasing individual giving, trading and commercial sector support.

39 Part 4 Increasing income

4.1 Increasing individual giving

More giving millions and millions There are potentially large numbers of The rich are getting richer, but their giving giving more people who could be donating if we is not keeping up: The Commission’s view, taking a 10-year develop the right approaches for asking • According to Philip Beresford, editor of perspective, is that individual giving is an and engaging them. For example: the 2010 Sunday Times Rich List, the area of potential growth for the sector and • 22.8m adults (46% of adults in the UK) collective wealth of the top 1,000 that we should be aiming to increase the are currently not giving at all, whereas 10 multi-millionaires was up by 29% in level of giving from £11.3bn in 2008/0934 years ago the figure was closer to 33%35. 2010, easily the biggest rise in the 22 to £20bn by 2020. We believe there are a We need to find ways of re-engaging years of the Rich List number of grounds for optimism. past givers, as well as engaging new • According to Polly Toynbee and David givers for the first time Walker38, the top fifth of households • The percentage of people earning more give less than 1% of their income, while than £44,000 p.a. has doubled from 5% the poorest 10th give 3% of their of taxpayers to 10% in the last eight income. years36 • Meanwhile, the highest rates of giving per capita relative to income are in the poorest parts of the UK37.

This issue should be an integral element in …while there are honourable exceptions Could the rich financial planning and estate management. there are far too many organisations give more? The role of professional advisers to the whose management of significant wealthy is crucial. The current initiatives by prospects and really major donors is the Society of Trust and Estate inadequate – undertaken by inexperienced The publication of the Rich List is always a Practitioners (STEP) to strengthen training and junior staff, with no engagement by splendid opportunity to review the habits in this area and the Philanthropy Advice trustees or senior staff outside the of those who share most of the DNA of Steering Group, initiated by New fundraising team. the rest of us but are assumed to be Philanthropy Capital, chaired by Dame …In other words the experience of giving is different in subtle ways – not least Steve Shirley are to be welcomed… because, as Ernest Hemingway is famously neither as fulfilling nor as much fun as it supposed to have said, ‘they have more The other crucial element needed is to could and should be. create and sustain the sense of personal money’… Source: Theresa Lloyd46. fulfilment and the enjoyment of giving. …research and experience indicates there This is entirely a reflection of how the are two strands that offer potential paths recipient organisation generates a personal to increasing giving by the wealthy. The response and manages the relationships first relates to the question of ‘what I can with significant prospects and major afford’. donors.

40 Funding the Future The profile of the rich has changed We can now add, from Joe Saxton’s Campaigns significantly in recent years. Whereas 75% analysis of financial flows and life stages42, Over the past 10 years efforts have of the wealth of those in the Rich List used two further groups with giving potential: concentrated on encouraging people to to be inherited, today it is only 25% (2006 ‘double income no kids’ households in give and to volunteer, through initiatives edition). There are signs that, as a result, their late 20/30s as they pursue their like the Giving Campaign and incentives, attitudes to giving are beginning to change. careers and older couples without such as Gift Aid. The fact that giving has Theresa Lloyd has identified a number of children. Sal LaSpada, CEO of the Institute increased by £2.3bn (42%) since 2000/01, drivers and trends that are shaping British for Philanthropy, has suggested in an shows that these initiatives had philanthropy, including the following39: interview with the Commission that considerable impact. For further details immigrants to the UK, who want to of these initiatives, see website version • More people are giving during support their host country, as well as Annexe 3. their lifetime sending money home to their country of • Views on the amount of wealth One of the main lessons from the Giving origin, should also be added to this list. parents should pass on to their Campaign was the importance of involving More generally, the baby boom generation children are changing charities from the outset. Some of the (9.5m people born 1945-57) have • More donors are giving together. Commission’s interviewees felt there should accumulated more wealth than any also have been far greater involvement of Generally, as a nation, we give far less than previous generation; they have fundraisers in the campaign and a greater the US, but we compare favourably with considerable potential not only for giving focus on the mechanics of giving. The value most other countries. Evidence from a legacies, but also for more engaged giving of the work done by charities could have number of studies would suggest the UK is in their lifetime43. been promoted more strongly and the one of the most generous countries in the Many of these groups are likely to grow campaign should have continued for longer. world in terms of giving and philanthropy substantially over the next 10 years; for as a proportion of national income40. The consensus from those we spoke to example, the over-65s are projected to There is fertile ground. was that the current priority was not to try increase by 25% by 202044. Legacy giving is to run another giving campaign, but rather Changes in demography also projected to grow by 3.1% p.a. over to help charities get better at asking – Not only is there evidence that the money the next five years45. On the basis of these without which many people will not give in is potentially available to give, there is also demographic changes, there appears to be the first place – and then to promote evidence of increasing numbers of people a good prospect for increasing giving over better engagement with those who give. with a propensity to give over the next 10 the next ten years. years. We already know from the UK But will people want, or be able, to give in Giving Survey41 that more people over 65 the present climate? Here again, there is give than adults as a whole (58% ground to build on. The Government’s Big compared to 54%) and that older people Society policy can be viewed negatively as give proportionally more than other ages a device for substituting voluntary effort (e.g. 75% of men over 65 give a mean for state-funded services, or positively as a donation of more than £40 per month welcome reduction in the role of the state compared to 35% of men aged 16-24 and a liberation of local community action. giving a mean donation of £7 per month). Either way, there is likely to be a revised social contract whereby things that used to be funded by the state will be paid for privately, either directly through fees and charges, or indirectly through donations or volunteering to support community and voluntary effort.

41 Part 4 Increasing income

4.1 Increasing individual giving

Better asking There is also anecdotal evidence from our Another concern frequently expressed Although there are about 21,500 interviewees that many trustee boards of about donors, is that they don’t necessarily fundraising staff in the top 500 charities larger charities are reluctant to spend support the most needy causes. There are and some 24,000 charities employing staff much time discussing their charity’s two important determinants of why most to fundraise as part of their role47, not to approach to fundraising, and are certainly people give to charity (in addition to mention the uncounted volunteer very reluctant to get involved in factors such as income and age) – first fundraisers, the Institute of Fundraising fundraising themselves. because they are asked and secondly (IoF) has fewer than 6,000 members and because they believe in the cause they are Attitudes towards donors are also mixed. only 10% of fundraisers have completed donating to. Recent research suggests that It is clear that getting more people to give the Institute’s Certificate in Fundraising most giving is ‘taste-based’ rather than more than £100 per month and getting Management. Evidence from our ‘needs-based’52. As a result, donors do not more of the very rich to give millions are consultees suggests there is a shortage of necessarily support the most needy going to be an essential part of meeting training at the local level for certain types causes. Fundraisers should recognise this the challenge of increasing giving to £20bn of fundraising e.g. approaches to more in the way they approach the public; per year by 2020. Yet, as Beth Breeze individuals and to companies. The Funding in particular, those working for less highlights in a paper for the Commission51 , Commission supports all the efforts being popular causes need to target their as a nation, we are at best ambivalent, at made by the IoF and others such as Skills – approaches very carefully. worst hostile, in our attitudes to the rich. Third Sector to improve standards. She argues for the need to reposition Joe Saxton’s paper for the Commission53 Sector attitudes towards fundraising are philanthropy as part of the solution to, suggests the following propositions for mixed. Within charities, fundraisers are rather than as part of the ‘problem’ of, raising funds through increasing sometimes viewed as ‘a necessary evil’, being rich; she suggests it should be fundraising capability and effectiveness: and certainly as an alien species, by those viewed as an essential part of the • Effective fundraising is about effective involved in service delivery or successful life in the 21st century. asking for donations campaigning48. Externally, according to To achieve this, she recommends trying • The motivation to give is not generic Charity Commission research on trust and to change the current negative attitude but specific confidence in charities49, 50% of people towards philanthropists, including for • We need to reduce giving-decisions think that charities use dubious fundraising example, initiatives to recognise and and increase decision-value techniques. The Fundraising Standards honour philanthropists and to report on • There is no such thing as donor Board50 is rightly keen to increase the the impact of their gifts. She also suggests fatigue (only poor fundraising) number of charities (currently 1,300) that more active rebuttal of accusations about • Packaging requests for funds into sign up to the ‘The Fundraising Promise’ tax evasion and self-promotion by major specific impacts makes giving easier and the IoF’s codes of fundraising practice. donors, in order to stem the tide of (so people know how much to give to anti-philanthropy sentiment and a get a particular result) recognition of the fact that all donors, • Giving needs to be integrated with the including the very rich, like to feel good way you live your life about being generous. • The new wave of fundraising will recognise that giving £20 should be as enjoyable as spending £20 in a restaurant (as well as lasting longer) • Fundraising costs money • Each organisation needs a balanced portfolio of income sources.

42 Funding the Future Charities’ ability to raise more income Some Commission interviewees felt there One approach which is appearing to from the public is largely contingent on needs to be a much more open debate have beneficial results is the potential for the resources they can devote to about the true costs of fundraising. New collective fundraising action by charities. fundraising. The major charities are measures are also needed for judging the This can take a number of different forms getting larger (‘if you can’t afford to fail, effectiveness of different approaches to including: you can’t afford to succeed’). They are fundraising, which take into account other • Collective approaches to researching also able to invest large sums to secure factors besides just net financial return for the propensity of different segments major gifts, where high priority is given to individual charities, and which build on of potential donors in the local area developing the relationship with the work of bodies like the ImpACT • A number of local charities and prospective donors (although not high Coalition54. voluntary groups sharing the same enough according to Theresa Lloyd), and, fundraiser(s) thereafter, to keeping donors informed • Networks for local fundraisers sharing about the impact of their donation. One information and learning. challenge is how to replicate this same • Shared approaches to training and level of customer care to other donors, supporting volunteer fundraisers and when the sums are smaller, but the trustee boards. volumes are higher.

organised locally and a proportion of Collective approaches places would be reserved for local to fundraising organisations, but the event would also be promoted to national charities. Charities would be charged for places and the net There is a long tradition of consortium- income after costs would go to local based fundraising. Alexandra Rose flag day organisations. goes back to the turn of the 20th century and raises funds for a large range of Other good examples of joint approaches predominantly small and local charities. to fundraising are Help for Heroes, which The Disasters Emergency Committee has successfully raised major sums for (DEC) is another well-established charities working with service men and consortium comprising most of the major women, and two national cancer charities international aid charities. that are planning to run a joint fundraising event. More currently, Cumbria Community Foundation (CCF) is exploring ways of raising more unrestricted funding locally. One initiative under discussion is a Three Peaks-style run where the event would be

43 Part 4 Increasing income

4.1 Increasing individual giving

There are some legal issues which New mechanisms for giving and asking Foundation’s Network’s Manifesto for collective approaches give rise to under Joe Saxton55 emphasises the importance Philanthropy and being promoted by the Charity law; these need to be addressed of integrating giving into people’s lives. Ambassador for Philanthropy, Dame if these initiatives are to be developed The development of social media and ICT Steve Shirley) further. not only makes this easier, but also • A universal payroll giving system that reinforces its importance. There are a companies are required to offer and Improving asking requires investment. number of opportunities for doing this which follows you around when you Traditionally, charities have used their including: change employer (being promoted voluntary income and reserves, but as by CAF) social investment mechanisms develop, • Developing the application of new • Seethedifference.org lets charities there may be more scope, particularly for technology to Gift Aid (ResPublica upload films about issues and projects larger charities or for consortia of smaller report commissioned by CAF) they are fundraising for and then charities, to borrow money to finance the • Adding donations or rounding up bills provides those who wish to donate costs involved, provided their track records electronically at the pay out counter or with the means to do so demonstrate high rates of returns. on the internet (Pennies Foundation and • A mobile phone application that will Give Change initiatives – see case The consensus from people the give donors the opportunity to make studies opposite) Commission has spoken to is that the micro-donations on their iPhone, • Receiving a voucher to spend in a store, priority should now be to improve the BlackBerry or Windows mobile within in return for donating goods to a charity quality of asking, rather than promoting an the space of a minute (being promoted shop (Marks and Spencers/Oxfam) abstract concept of giving; and that by GetGiving and MissionFish) • Including mechanisms for giving when particular priority should be given to • Further development of sites such as buying financial products, such as helping those smaller charities that do not PayPal, JustGiving and Localgiving pensions, mortgages, ISAs and have the same levels of resources to invest • Further TV appeals, e.g. persuading ITV investment trusts (being pursued by in fundraising that are available to the and Sky to follow the BBC’s examples of CAF and others) larger ones. At the same time, initiatives Children in Need and Comic Relief. • Bank Gifting accounts as part of to increase philanthropy and to engage mainstream banking arrangements philanthropists more positively should (proposed in the Community be actively pursued.

There are more than 230 exhibits and 120 Showcase of Fundraising articles covering all the main fundraising Innovation and disciplines and activities including direct 56 mail, legacy marketing, communication Inspiration (SOFII) and events. It is available on line and is open to everyone free of charge. SOFII was set up in 2007 to help SOFII gets approximately 12,000 visits fundraisers avoid having to constantly each month from over 8,000 people in reinvent the wheel. It is an archive over 100 countries. Most users come from comprising examples of best practice, a the US and the UK. The aim is to develop a swipe file and a guide particularly for those constantly evolving resource with an working in small teams or in isolation. increasing user base and a large, growing archive of fundraising materials.

44 Funding the Future One of the particular challenges is how to Making giving easier at every level and The Institute of Fundraising is in the early ensure these mechanisms also benefit improving the fiscal environment for stages of planning a ‘Greater Good smaller charities. Otherwise, they may charities and donors are two themes Project’ to promote universal acceptance simply enable the big to grow bigger at the which have consistently been raised with that giving is a good thing. CAF is also expense of the smaller. For example, some the Commission. One of the most planning follow up work on ResPublica’s of our consultees have argued that important roles for the government in report on digitising gift aid58. NCVO is JustGiving should have a staggered fee for promoting and incentivising philanthropy already running its ‘What do you believe different sized charities. There is also a and individual giving is to address these in?’ campaign. continuing need for the sector to work issues. A number of initiatives for doing The Funding Commission is proposing a together to influence the communications this, including the Gift Aid Forum, the Better Asking Campaign, which would be industry, both in terms of product Charity Tax Group’s work on VAT on planned in conjunction with IoF and CAF development and charges. shared support services and irrecoverable and others, to ensure it complements VAT and the Lifetime Legacies Working There is growing interest in innovation in these other initiatives. Group, are already in existence. The fundraising including use of ICT. The Commission supports these and the other Showcase of Fundraising Innovation and initiatives in 4.4 below (see also website Inspiration (SOFII), founded by Ken version Annexe 4). Burnett, has a website devoted to publicising innovative approaches.

Retailers nominate which charities should Electronic charity boxes benefit from the majority of the monies collected to ensure it aligns with the The Pennies Foundation is a registered retailer chosen charity approach; the charity established to improve people’s remainder will be allocated by the lives by making giving simple and inclusive Foundation to a range of other charities. through the creation of the ‘electronic Plans to trial Pennies are under way and it charity box’. As consumers increasingly use expects to roll out more widely to retailers payment cards rather than cash, there is an in 2011. opportunity for the ‘Pennies’-branded The Give Change consortium is led by electronic charity box to raise incremental Cancer Research UK and comprises British money for many UK charities. This could Red Cross, the World Wildlife Fund and be through rounding up the bill to the Great Ormond Street Hospital. It is also nearest pound or though adding a chosen preparing to come to market shortly with amount to the bill. It will be available to a rounding-up platform. Its mission is to consumers in stores and restaurants, as create the virtual charity collection box of well as when they shop on-line using the the electronic age. Customers will have internet. £80m could be raised every year the option of rounding up their bill at the if just 3% of transactions were rounded up. checkout and donating the difference to Consumer research suggests the figures one of or more of the four causes or to a are likely to be much higher. cause nominated by the retailer.

45 Part 4 Increasing income

4.1 Increasing individual giving

The Funding Commission’s aspiration is • Increasing the number of It should work through existing agencies, to increase the amount given each year in philanthropists giving over £1m p.a. rather than setting up new ones, but real terms from £11.3bn in 2008/09 to to charity from 290 to 465 and should inject new finance to help them £20bn by 2020. From our initial increasing the amount they give by scale up their activities. It should be modelling, we believe this is an ambitious, 60%, contributing £2.1bn. directed by a small executive body, but achievable target. For example, it including philanthropists, which will hold Further work needs to be done on the could be achieved by: the delivery agencies to account for feasibility of achieving these estimates, achieving agreed outputs and outcomes, • Converting 4.7m non-givers into givers but we believe the statistics and but also ensure the relevant umbrella • As a result, increasing the number of demographic changes highlighted earlier, bodies are fully involved. standard givers donating less than £100 coupled with a Better Asking campaign, per month from 50% of the adult provide grounds for optimism. The campaign will cost £10m – to be population to 55%, contributing met by investment from the commercial The campaign should aim to increase the £8.6bn p.a. sector (e.g. the financial services and confidence and the competence of all • Increasing the amount that high givers communication industries) and other those involved in asking for funds for (more than £100 per month) give by sources with appropriate government charities, including trustees, chief 60%, contributing £9.3bn support, e.g. matched funding at a later executives, paid fundraisers, volunteer stage in the campaign. fundraisers and communications staff.

The campaign re-energised and revitalised over 56,000 ‘warm prospects’ – people Innovation in fundraising the Amnesty brand and worked because it they knew had an interest in environmental created its own crisis; touched a nerve; issues. Those that replied were visited Amnesty International provided an immediate way for people to personally with the sapling and invited to Amnesty wanted to run an advertisement see the difference they could make; and commit to regular giving. The sign-up rate in the press on the day of Shell’s AGM involved an already warm audience in a exceeded all expectations. (18 May 2010). They asked those, who way that they could identify with. De Paul UK supported their campaigns but did not Donors who had paid to have their name This charity supporting homeless people necessarily make donations, to buy one in the advertisement got a personal note created a provocative downloadable app or three square centimeters of the of thanks. (i:hobo) that lives on a mobile phone and advertisement – those buying three got Greenpeace makes increasingly desperate appeals for their name on it. Using Twitter, Facebook Recognising the public’s scepticism and help which the owner has to respond to in and other social networking sites they got increasing reluctance to sign up for order to keep the ‘hobo’ well. At the end of a massive response and had enough face-to-face fundraising (often referred to the three-day real-time experience, there money for an ad van and two as ‘chugging’ and in fact invented by is a direct appeal for help. The free app advertisements. The Financial Times Greenpeace); Greenpeace tried a new shot to the top of the iTunes download rejected it. This news was widely tweeted approach in India, with big success. With charts and news of it spread through social generating blogger coverage and wider chugging, only 17% of people approached networking. To date, it has had 21,500 awareness. agree to listen and only 10% of them views on YouTube and over 64,000 ratings actually commit support. By ‘prospecting’, from people who have downloaded it. Greenpeace achieved a 25% conversion Source: NCVO57. rate. They texted a free offer of a sapling to

46 Funding the Future •  Helping develop new ways of asking Recommendation 5 – people to give, taking advantage of new The Better Asking mechanisms for giving •  Building the capacity of CSOs to engage campaign with social media and technology and commissioning further research into NCVO should work with the Institute of how the potential of new developments Fundraising, the Fundraising Standards in this field can be more fully exploited Board, ACEVO, Charity Trustee Network •  Supporting initiatives to improve the and CAF to secure funding for a Better way in which CSOs communicate their Asking campaign on the following lines: work and engage with those who support them Objectives: •  Raising awareness of CSOs through •  Improve the quality and effectiveness media work around philanthropy of all forms of fundraising, especially by •  Developing new, more open, measures smaller and local CSOs for evaluating both the cost •  Help develop, support and promote effectiveness and the success of innovative approaches to asking different fundraising approaches. •  Promote the importance of the work Outcomes: of CSOs. •  More giving millions – through Activities: increased levels of philanthropy from •  Training initiatives for trustees, CEOs, high net-worth individuals and paid and volunteer fundraisers to •  More giving more – through current enable better asking and better donors giving more effectively and engagement increasing the size of their donations •  Developing and supporting collective •  Millions giving more – through approaches to fundraising, working in attracting new donors, especially conjunction with community younger people. foundations and taking full advantage Benefits: All CSOs involved in fundraising, of new initiatives like electronic especially smaller, local CSOs. rounding up and Localgiving •  Supporting the development and sharing of innovative approaches to fundraising, including sharing research, e.g. on donor motivation and the effectiveness of different approaches

47 Part 4 Increasing income

4.2 Increasing earning through trading

As highlighted in Section 1, over 20% of • Development of new social enterprise The areas least well served currently are the sector’s income, £8.3bn, is earned business models, such as mutuals, capital for non-asset-based trading and from trading on the open market, i.e. community interest companies and start-up capital where profit margins are trading with individuals, other CSOs and cooperatives, in place of traditional so tight that loan repayments would not the commercial sector. This is just below public sector models. be possible. For example, social firms, what is earned through contracting with employing people who would otherwise Within CSOs trading as a mechanism the public sector, £9.1bn, making open have difficulty accessing the mainstream to deliver social and environmental market trading the sector’s second most job market have higher costs in relation to objectives has been increasing. Over important source of income. employment, and view access to start-up the last 10 years trading has become an grant funding as critical. CSOs needing to There are both push and pull factors accepted part of the income base for develop systems for personalisation and within the funding environment which the sector and is now being used as a individual budgets will also require access are influencing trading on the open market business model to place value on a to investment. Other types of finance, by CSOs: particular service61. such as convertible grants or quasi-equity • Rise of ethical consumerism. Between Trading on the open market to achieve may sometimes be more appropriate than 1998 and 2008 expenditure on ethical social objectives could be seen as the poor conventional grants or loans. goods and services grew nearly cousin of trading with the public sector Businesses will work very hard to generate threefold from £13.5bn to £36bn, since most of the policy attention to date 5% profit; so it will obviously be extremely outstripping overall market growth of has been on the latter. As a result, CSOs difficult for even enthusiastic CSOs to 58%. Fairtrade sales in this period also that want to trade on the open market cross-subsidise services, using trading increased nearly 30-fold from £22m face a number of challenges, particularly in income. This is why on-mission, rather to £635m59 relation to having access to finance and than non-primary purpose trading is • Increasing demand for businesses to markets and to specialist skills and support. promoted by many of the support adopt ethical values, e.g. a recent poll It is vital that these potential barriers are agencies. It is also why CSOs have difficulty found that 71% of people believe that addressed if they are to compete attracting private investment. Add to this the social and environmental values of successfully against public and private the documented dependency of many a business are as, or more, important agencies in this marketplace. social enterprises on public sector than before the credit crunch60 Access to finance funding62 and it is clear that a move to • Growing interest in supporting the local Access to finance was seen as the biggest more open-market trading could be economy barrier to trading on the open market even particularly difficult. As some of our • Increased brand awareness by the though nearly all the social enterprises that consultees said, ‘Social enterprises are a general public about social enterprise are members of the Social Enterprise ‘‘model in the making’’ rather than a • Major cut backs in public spending Coalition (SEC) have had loan finance at proven, universally applicable panacea.’ requiring a rethink of the existing some point in their development. This is business models to consider which Access to markets true both for organisations using trading as services could be wholly or partly For many organisations there will be a business model and for those who want funded by trading changing relationships, or more complex to develop trading activities to build • Introduction of individual budgets and relationships, as beneficiaries also become organisational resilience. (The issues have personalised services which will require customers, e.g. through personalisation been broadly described in Section 2.2 on new marketing, IT and cash and individual budget arrangements. financial capability.) management systems, as well as Different skill-sets as well as new systems redesigned services are required.

48 Funding the Future In a retail environment it is often hard to market. There have been accusations of Overcoming these tensions and obstacles get across the message that by purchasing unfair trading when charities move into is important if trading on the open market a product or service you are contributing territory occupied by the private sector, is to increase and if charities are to gain to social objectives. For charities, selling some of which have been rejected and expertise in market development. One of the brand message is perceived to be some of which continue to be debated63. the most effective ways of addressing this easier than for social enterprises as the When the reverse happens, as with Fair can be through developing partnerships public have an understanding that charities Trade chocolate, the charity may struggle with larger organisations, either in the deliver social good. The Social Enterprise to retain distinctiveness. For example, Fair commercial or the charitable sector Mark is helping to develop a brand Trade Divine Chocolate, 45% owned by (see case studies below). message for Social Enterprise. the farmers producing cocoa, now competes with Cadbury following their Additional factors have caused friction adoption of the fair-trade mark, creating between charities seeking to trade and challenges of how to market the difference private companies operating in the same between the two on a chocolate bar.

CRUK’s Race for Life raises £60m p.a. from However, the sales cycle is time-consuming Case studies – 750,000 women taking part in, and raising and it has been a challenge to find the key Partnerships sponsorship for, over 230 five-kilometre decision-makers within large organisations. races all over the country. Through this She is therefore currently negotiating a partnership with Open Gym, CRUK aims partnership with an association of retailers. Cancer Research UK (CRUK) to encourage regular exercise by This will provide access to an existing and Open Gym promoting Open Gyms locally. This market of organisations which will benefit CRUK’s Open Ventures Challenge is one of develops a regular, year round income from frontline customer service training in their initiatives for developing innovative stream for CRUK based on monthly disability awareness. As a result of the approaches to fundraising. Using ‘crowd- subscriptions as 10% of the Open Gym partnership, she will have an opportunity sourcing’, CRUK built up a valuable membership fee is donated to CRUK. In to scale up the delivery of her service and community on- and off-line developing addition, the aim is to recruit new CRUK achieve much higher impact. and assessing ideas for income producing supporters by encouraging Open Gym The CREATE Foundation social ventures. One of the three ventures members to take part in Race for Life each CREATE is a social enterprise in Leeds, chosen for a pilot partnership was Open year. The partnership works by CRUK which is now in the Royal Bank of Gym; between them, the three ventures providing marketing and PR expertise and Scotland’s SE 100 (the social enterprise have the potential to generate over £2m Open Gym providing an enthusiastic social equivalent to the FTSE 100). It provides p.a. for CRUK. entrepreneur to organise the local fitness skills training, work experience and real groups. Open Gym is a social enterprise providing employment opportunities to vulnerable outdoor fitness groups founded by Jo Hill. Disability awareness training and homeless people. CREATE has formed Open Gym recruit fitness trainers to One of UnLtd’s award winners provides on a partnership with a supermarket chain organise and run groups in local parks; line disability awareness training for front which has increased the number of customers are recruited through leaflet line customer service staff. Her innovative training and job opportunities it can now drops outside railway stations and other training has attracted very positive offer homeless people. venues; they can then join a group and pay feedback from corporate and public sector Source: Interview with Jo Hill, UnLtd on-line (one-off or monthly subscription). organisations.

49 Part 4 Increasing income

4.2 Increasing earning through trading

Developing the skills base It remains to be seen whether the reforms We recommend that NCVO and SEC work Current business support for social to the Business Link service, not generally together to address these three barriers. enterprises is primarily focused on those thought to have been helpful before, will Our Recommendation 2 for financial who want to deliver public services. The prove more valuable to social capability programmes will also help only publicly financed support is via the entrepreneurs. We welcome the develop skills relevant to trading. School for Social Entrepreneurs to support initiatives being taken by Skills – Third The Funding Commission’s aspiration is individual entrepreneurs, via Sector and others to develop a virtual to increase trading income in real terms CapacityBuilders to support organisations academy to provide business advice. The from £8.2bn in 2007/08 to £10bn by 2020. which want to set up social enterprise as an government envisages that private sector This could be achieved by increasing the income stream (coming to an end) and via provision of business advice will also number of charities involved in trading intermediaries like UnLtd and regional become more important, including from 85,100 in 2007/08 to 133,000 by social enterprise support agencies (with private sector business support agencies, 2020 or by increasing average trading funding from Regional Development such as those linked to local Chambers of income from £97,000 to £152,000 p.a. Agencies – also coming to an end) to Commerce or the local authority. There is – or by a combination of the two. support developing social enterprises with also potential for more pro bono help in finance and skills. this area (see Section 4.3 below). Much of the generic business support CSOs are not uniform in their needs: available is monocultural and fails to some sub-sectors have special recognise the complexities and unique requirements. Peter Holbrook, CEO of issues of CSOs trading on the open the SEC, thinks that a demand-led model, market, including the specific constraints whereby CSOs are provided with funding of charitable structures and the potential to purchase the business advice they benefits of trading subsidiaries. Specialist need (e.g. from the former Business Links issues are often not covered well, e.g. asset budget) is likely to be the most effective transfers, legal structures and intellectual way of ensuring this. property.

• Access to skills: Business support for • Recognition: As more social Recommendation 6 – social enterprises needs to be tailor- entrepreneurs develop initiatives in the Trading up made to their needs and is often best civil society sector, the role of social provided through the provision of entrepreneurship should be seen as a grants for vouchers to purchase advice specific area of expertise, which should NCVO and the Social Enterprise Coalition from consultants and specialist agencies be supported, recognised and (SEC) should work together to promote or as part of an ‘engaged funder’ celebrated as a distinct profession. better support for charities and social approach enterprises involved in trading, including: Benefits: All CSOs wanting to become • Access to markets: partnerships involved in, or develop their existing, • Access to capital: Funders should be between CSOs engaging in social trading activities. encouraged to provide high risk, venture enterprise and national charities or capital to intermediary agencies like commercial companies should be UnLtd and Venturesome for investment brokered with the help of support in social enterprises to enable them to agencies develop their activities (see also Recommendation 11)

50 Funding the Future 4.3 Increasing commercial sector support

Currently, income from corporate sources The current financial climate heightens is a relatively small proportion of charities’ the importance of establishing the right Case study – total income; in 2007/08 it stood at £2bn, ways to share information, open up LSI Architects or 5.6% of total income, with £1.2bn dialogue and establish ways to benefit coming from donations and a further both sectors64. To secure and increase £800m from different forms of commercial giving on a sustainable basis, LSI Architects65 have offices in London sponsorship (classified as trading – see the sector will need to build and articulate and Norwich and in 2010 won the Section 4.2 above). However, corporate the evidence on how these partnerships Business in the Community Award for the giving often involves non-financial are of mutual benefit. The benefit to the best small company in the community. support, for example by supporting sector is perhaps more obvious and They offer pro bono professional advice volunteering by their employees or measurable in terms of the support to local groups and also encourage staff at providing pro bono services, or donations provided, and the outcomes that this all levels to engage in community in kind, such as the use of equipment or support helps to achieve. However, the programmes. They see this as a way of premises. assumption that the sector is therefore training employees and of providing the prime beneficiary is not necessarily management opportunities to junior Effective corporate social responsibility correct. We need to build more equal staff. Staff surveys have shown that these (CSR) programmes are those that not only relationships and a genuine spirit of programmes are seen as an important bring mutual benefit to companies and partnership from which both sides derive aspect of job satisfaction. CSOs, but also have an impact on the benefit. ground, with the people and communities they work with. It is important to move the debate away from CSOs asking for support and towards a reframed Pilotlight discussion around the mutual benefits of partnership, as the commercial sector also Pilotlight’s mission is ‘to enable small, benefits significantly. ambitious charities, working to alleviate disadvantage, to help a greater number of people more effectively.’ It was set up to address the needs of small charities and social enterprises which have expertise to address the needs of their beneficiaries but do not have, and could not afford to buy, the time and skills to develop their own infrastructure or purchase outside expertise. Pilotlight has established an effective way of working that overcomes some of the barriers that prevent professionals from giving help (such as being time poor) to enable charities to receive effective, skilled support. It does this by supporting teams of senior business people who coach charities through processes such as strategic and business planning. This process is called ‘pilotlighting’.

51 Part 4 Increasing income

4.3 Increasing commercial sector support

There are a range of different models of However, there appears to be a gap in Better information and dialogue between CSR, but they are not mutually exclusive. terms of raising awareness of CSOs about the sectors could highlight both existing Some companies will have a number of how to approach business, including how and potential linkages between businesses different programmes in place, for best to specify the type of support they and the communities in which they example, event sponsorship, raising funds need. Without this understanding, many operate. Infrastructure organisations for their ‘charity of the year’ and employer- CSOs will not be not be able to access could act as brokers between the two supported volunteering. In recent years corporate support. sectors. This could involve partnership there has been an increase in more working between bodies, like community There is a need, therefore, to provide more innovative approaches to corporate giving, foundations and councils for voluntary information to CSOs, particularly new, with a greater focus on engaging service, and bodies like the local Chambers small and locally based organisations. Even customers and employees, as well as of Commerce, as well as CSO-run larger charities with strong brands using core business skills and models for brokerage schemes such as Pilotlight. sometimes seem to underestimate the public good. added value they can bring to a joint More and better brokerage could open up These approaches have a number of venture with a commercial partner. further opportunities for pro bono help. benefits for companies, for example Wider awareness of specialist initiatives building brand value through association like Pro-Bono Economics, Law Works and with an organisation or cause; developing Getting on Board, as well as of more staff skills and engagement with the generic provision of skilled volunteers company; and having an impact on through bodies like Reach and Primetimers the ground. also needs to be promoted.

52 Funding the Future The challenge is to maintain and increase This could include the range of tax reliefs Given that the majority of those employed levels of support from the commercial available to business to incentivise in the private sector work in small and sector in economically difficult times, corporate giving; there is also a strong case medium enterprises (SMEs), and that the especially given the likelihood of a for simplifying these tax incentives to vast majority of all UK businesses are in sustained period of low or zero growth. make them more attractive, as well as the SME sector, there is a large potential This should be easier where work is already cheaper for government and business to resource for support and funding for taking place and businesses are already administer (see website version Annexe 5). CSOs which is not being maximised. seeing the benefits. There may, however, Commissioners could also be encouraged We believe the commercial sector is need to be increased efforts to measure, to include incentives for CSR in tender becoming increasingly aware of how evaluate and demonstrate the specifications. The new Local Enterprise engagement with CSOs can help develop effectiveness of partnerships66. At the Partnerships could provide a framework its staff, improve its brand and open up same time, there may be new for information exchange and joint new markets, but often CSOs lack the opportunities for partnership approaches working on these and other issues experience to make the most of these to the delivery of public services as new between the sectors. opportunities. The infrastructure and approaches to commissioning open up While there is some evidence of the mechanisms for enabling this to happen new possibilities (see Section 5.3). benefits of engaging with CSOs in terms need to be strengthened. There is a real need for a more open of reputation, employee engagement and The Funding Commission’s aspiration is to exchange of information within the sector specifically when engaging in issues or increase the level of commercial sector on sharing best practice about how to localities that are relevant to the business, donations to charities from £1.2bn in work with the commercial sector, as well as many in the business community still need 2007/08 to £2bn by 2020. This could be for better communication between the to be convinced. Much of the research into achieved by increasing the number of two sectors. the benefits of CSR and engagement with charities receiving support from 19,700 the sector also appear to relate to larger Civil society infrastructure bodies could in 2007/08 to 41,000 by 2020 or by businesses. play a valuable role in providing clear, increasing the average size of donation accessible information. from £62,500 in 2007/08 to £135,000 by 2020 – or by a combination of the two.

- Articulate the business case for • Particular focus should be given to Recommendation 7 – increased partnership between the developing the relationship between Mutual benefit with the sectors CSOs and: - Recommend ways of expanding, and - SMEs at the local level, working with commercial sector increasing awareness of the current community foundations and local range of brokerage services support and development • NCVO, CAF and Business in the - Promote the opportunities for mutual organisations Community (BITC) should jointly benefit through increased partnerships - Companies working in the social media convene a working group of relevant by publicising examples of good and new technology field and in the organisations, including the CBI and the practice, particularly to CSOs financial services industry. - Recommend ways of increasing Institute of Directors, representatives of Benefits: Potentially all CSOs. local chambers of commerce and Rotary awareness of the tax and fiscal Clubs and some of the specialist incentives available, particularly intermediaries working in this field, to: among SMEs.

53 Part 4 Increasing income

4.4 Other actions

We also support the following initiatives • Reducing the barriers and bureaucracy Trading which would complement the involved in running raffles/lotteries • Promotion of the Social Enterprise recommendations in this part of generally and enabling higher prizes in Mark (Social Enterprise Coalition) our report: particular (subject to this being shown • Development of a virtual academy to not to have a negative impact on the provide business advice by Skills – Third Individual giving National Lottery) (being promoted Sector and others • Improvements to Gift Aid (being by CAF) • Increased transfer of community assets promoted through the Gift Aid Forum) • Development of new mechanisms for (being promoted by the Development • Proposals for digitising Gift Aid (being promoting giving through financial Trust Association (see Section 3.3)). developed by CAF following products (being pursued by CAF and ResPublica’s report) Commercial sector support others) • Improvements to the arrangements for • Simplification of tax incentives to make • Development of Localgiving.com by the claiming tax relief on donated goods them more attractive, as well as Community Foundation Network (see • Introduction of tax reliefs on works of cheaper for both government and community foundations case study in art donated to the nation (as proposed business to administer Section 5.2) by the Institute for Philanthropy) • Use of procurement processes to • Development of bank gifting accounts • Removal of VAT on shared support support CSR, e.g. through incentives to (being promoted by Community services and irrecoverable VAT (being organisations that can demonstrate Foundation Network and the promoted through the Charity Tax positive social and economic impact on Ambassador for Philanthropy) Group) communities. • Developing the provision of better • A universal payroll giving system that financial advice to philanthropists companies are required to offer and (being promoted by the Philanthropy which follows you around when you Advisory Steering Group, chaired by change employer (being promoted by Dame Steve Shirley) CAF) • Development of policy and fiscal • Remainder trusts and lead trusts (being proposals for increasing philanthropy promoted through the Lifetime (being developed for discussion with Legacies Coalition) the government by the Philanthropy • The Greater Good project (being Advisory Steering Group) developed by the Institute of • Transitional arrangements (e.g. charity Fundraising) cheques) for when cheques are • The drive to increase the number of phased out charities becoming members of the • Lobbying against proposed Fundraising Standards Board (being introduction of music charges by the promoted by the FRSB) Intellectual Property Office, Dept for • Amendments to the Substantial Donors Business, Innovation and Skills, which provisions in the 2007 Finance Act will adversely affect small CSOs (being discussed through a joint (NCVO and others). HMRC/CAF working party) • Assurances regarding the ‘fit and See website version Annexe 4 for further proper persons’ test in the 2010 details of the above Finance Act (being sought by the Charity Tax Group)

54 Funding the Future 4.5 Ensuring all types of CSO benefit

The major charities already have by far the Trading up aims to help all forms of social biggest share of individual donations; all enterprise to access finance, markets and the signs are that the big are likely to get training. Partnerships between SMEs and bigger as a result of many of the new ways larger national charities or commercial of asking that are being developed. The organisations are one way of doing this. Better Asking campaign will therefore Developing mutual benefit with the target smaller CSOs and help them get commercial sector will also have a better at asking through making the most particular focus on developing of initiatives like Localgiving, electronic partnerships between CSOs and SMEs at change and collective approaches to the local level, working with community fundraising, as well as through training in foundations and local chambers of putting their case well, making use of social commerce. media and improving their approaches to fundraising.

55 Government’s role 5

56 Funding the Future The Government must also play its part

The Government must play its part by establishing a Restructuring Fund to promote greater collaboration and/or merger between CSOs, developing small grant programmes as part of its Big Society initiative, and introducing new approaches to commissioning, as well as setting up the Big Society Bank to shape the market for social investment in the sector and lending its support to the Funding Commission’s other recommendations.

57 Part 5 Government’s role

5.1 Investing in collaboration

If CSOs are to collaborate more closely in The Government’s consultation exercise order to increase impact, achieve on improving support for front-line CSOs efficiency savings and become more and its reference (Cabinet Office, Office sustainable, they will need help, both in for Civil Society, Oct 2010) to ‘an terms of independent support (facilitation, opportunity for time-limited consolidation legal advice, HR support) and investment grants to enable infrastructure to in accommodation and new systems (IT, implement merger or substantial accounting and communication). The collaboration’ indicates support for this Modernisation Fund was an important approach. NCVO, NAVCA and other first step, which has been shown to have relevant agencies must play a leadership been successful, but further, one-off, role in restructuring current infrastructure investment is required in order to achieve arrangements. the benefits of increased collaboration.

- Identifying areas where investment is Recommendation 8 – required to bring provision up to Restructuring Fund desirable standards and ensuring the best use is being made of ICT by infrastructure bodies and their service The Government should establish a users Restructuring Fund: - Encouraging infrastructure bodies to • The Fund should continue for three apply for support for developing years and comprise £20m p.a. to fund merger or collaborative working (e.g. one-off support, legal costs and shared support services) proposals restructuring costs. £5m of the Fund - Encouraging local government to should be earmarked for rationalising invest in these new structures in the and/or restructuring national, regional longer term. and local infrastructure and, where Benefits: All CSOs and all infrastructure necessary, bringing provision in certain bodies considering collaborative working areas up to minimum levels consistent or merger. with quality standards. • NCVO, NAVCA and other relevant national and regional/sub-regional infrastructure bodies should play a leadership role in helping to reconfigure the present pattern of infrastructure through: - Working with relevant government bodies and other key funders like BIG, at the national, regional and local level, to develop an agreed infrastructure strategy

58 Funding the Future 5.2 Developing the Big Society initiative

The Government’s Big Society initiative • Introduction of a quality-assurance envisages local community and Community foundations system which all community foundations neighbourhood groups playing a larger role now have to obtain as a condition of in their local communities; it also implies Community foundations are a particular membership. that public services will have to rely on more category of trusts and foundations which An important new development has been voluntary income than in the past. All these raise their own funds and have a specific the investment by a philanthropist, in developments will need CSO support to local focus. In 2008/09, there were 57 Localgiving.com, which will enable every help make them happen; much of this community foundations which between community group in contact with its local support already exists in various forms, but them invested £66m in 20,000 community community foundation to market itself, it needs modernising and strengthening. organisations and covered over 90% of the attract donations and network with other This will require one-off investment and country. Both grant-making and charitable organisations. then sustained grant support, albeit at assets management have doubled in the lower levels than in the past. last five years; according to the The Community Foundation Network’s There is also a need to promote local Community Foundation Network, vision is that, with the help of this new giving and to build relationships with community foundations are now one of technology, community foundations will donors and businesses at a local level. the leading funders in the community become centres for philanthropy providing 67 There is an important role here for sector . In 2009/10 community advice to donors and applicants alike on community foundations to develop foundations have had more new donors where to give and how to get better at funding for the sector at this level. than ever before. telling their story to potential donors. They are particularly well placed to advise many The Government’s Spending Review Some of the most important recent of the smaller trusts and foundations about proposal to match-fund donations to local developments have been: endowments is therefore welcome. potential causes to support in their area. • Increasing numbers of philanthropists One of the attractions of community Small, local CSOs are the life blood of civil joining the boards of community foundations is that they can help raise funds society, but at the moment they are seeing foundations (as opposed to the ‘great for local groups which may lack the capacity their grants being cut. Appropriate public and the good’). to fundraise and, as charities themselves, finance, including grants, is needed to help • New staff with marketing, commercial they provide a mechanism for people to people help themselves; small, easy-to- and service-sector experience. give to community groups that are not access, light-touch grant programmes, which • Less focus on managing ‘in and out’ charities, but serve charitable purposes, in a enable voluntary activity to flourish and funds and more focus on building tax efficient way. This is clearly very relevant which are accessible to different sections of relationships with local philanthropists to the Government’s Big Society agenda. the community, should be an essential and companies. ingredient of the Government’s Big Society initiative. Its plans for a Communities First grant programme are welcome but further programmes of this sort need to be endowments), administered by agencies developed across a number of departments. Recommendation 9 – with relevant expertise, to help people from a range of different communities There are already a range of networks and Big Society grants to help themselves. organisations that provide support to local • Big Society initiatives should work with CSOs, but they need to be modernised • Government should help build the Big existing generalist and specialist and strengthened; proposals for Society through allocating funds for a networks currently providing support to developing the Big Society should work series of small or micro light-touch grant individuals, and build links within and with the grain of existing communities and programmes (building on the between communities. not be imposed (see Recommendation 8). Government’s proposals for Local facilities, such as charity shops and Communities First and the match- Benefits: Smaller, local CSOs. community centres, have an important funding of donations to local role to play in this regard.

59 Part 5 Government’s role

5.3 Changing commissioning

Although there have been some examples Contracts are becoming ever more In an interview with the Commission, Barry of good practice, the quality of most public risk-averse, detailed and bureaucratic, Quirk, Chief Executive of the London sector commissioning is still very poor and as well as larger in volume and scale. Borough of Lewisham, suggested that the the procurement and contracting process Payment by results creates the need for only way of achieving the degree of change has been very damaging for many CSOs. working capital, which currently only the – and savings – required is through Furthermore, demographic changes and largest CSOs have access to. All these sponsoring ‘disruptive innovation’, i.e. the financial outlook mean that the factors mean that CSOs are not having the breaking up the current patterns of service current pattern of public sector services is opportunity to contribute as effectively as delivery through bringing in new providers unsustainable. they could to the delivery (like charities, social enterprises, public of new-style public services. sector staff and private suppliers) and There need to be radical changes to the accepting that there will be a degree of way that public services are commissioned The present system militates against the chaos, but that new ways of doing things and procured. The current system does need to achieve better value for money and will emerge. not allow for the level of change needed. we would question whether larger Outcome commissioning still tends to be contracts necessarily provide the best value. If public expenditure is to deliver about outcomes for existing services, rather The system undervalues the wider value maximum impact for individuals and than inviting providers to propose new that a service or organisation may deliver communities, then procurement processes ways for delivering a particular set of and, perhaps, most pertinent for this report, need to incorporate a system that focuses outcomes for a particular set of users. As a carries high transaction and transition costs, on delivering better outcomes; contracts result, the service configuration remains in terms of creating, supervising and should set out what is to be achieved, not broadly the same, irrespective of who is enforcing specifications and negotiating how services are to be delivered. And delivering the service, rather than staff transfers and revised terms and there needs to be greater emphasis on innovative solutions being developed in conditions. Only by radically changing the trust, rather than compliance. This their place. way that public services are commissioned approach would be consistent with the and procured and by including social clauses strategy of ‘sponsored disruptive to reflect wider values will it be possible to innovation’ outlined by square the circle of securing better services Barry Quirk. and cutting costs.

• The impact of an ageing society and • This encourages self-reliance, enabling Reshaping public targets to reduce child poverty could citizens to work together to solve new services add the equivalent of an extra 4%-6% of problems. Diverse problems are allowed GDP on to public spending in the next to find diverse solutions, responding two decades if current models of dynamically to changing demands. • Three, mutually reinforcing, systemic provision continue. These changes improve outcomes for shifts are required: a shift in culture – • Salami-sliced cuts are not the answer; citizens, at lower cost. from social security, to social fundamental reform based on long- Source: 2020 Public Services Trust productivity; a shift in power – from the term strategic principles is required. Commission68. centre to citizens; a shift in finance – • A shift in culture towards the locality is reconnecting financing with the proposed, with public services, such as purposes of public services. parks, leisure centres and libraries run as mutuals and cooperatives.

60 Funding the Future A trust-based approach to commissioning Having satisfied the Department that their would maximise the impact of public Trust-based contracting organisations are well run and have the spending, without undermining necessary financial viability, the high-trust procurement rules that require openness In New Zealand, the Ministry of Social providers then have a single contract for a and fairness; all providers, regardless of Development69 has recently signed four number of different services, which only their sector, would have the same ‘high trust’ contracts with community- requires them to report once a year to opportunity to demonstrate their full value based organisations, which replace lengthy government. The model requires regular when tendering for contracts, but they box-ticking paperwork with a simple communication, but allows CSOs the would not be required to produce the same results-based contract. flexibility to decide how their funding can organisational information every time. best be used to serve the immediate and We recommend this approach to long-term needs of the community. commissioning and procurement is reflected in the Cabinet Office’s forthcoming White Paper on Commissioning and in subsequent government guidance and that the Government’s Spending Review proposal for a £100m Transition Fund is used to help CSOs adapt to this approach. • New structures: National and local Recommendation 10 – organisations, especially local Commissioning for community groups, should form coalitions to work with local people to the future develop new forms of services; social enterprises, including cooperatives • Outcome-based funding: All formed by public sector staff should be government funding should be directed encouraged at achieving better outcomes for people • Trust-based commissioning: following and communities, for example through initial due diligence, the relationship greater use of social clauses and more between commissioner and provider pooling of funds. Service users and the should be based on trust, not CSOs representing them should be compliance, while ensuring new entrants involved in specifying user outcomes at can still get access; contracts should set the outset of commissioning out what is to be achieved (outcomes) • Co-production and market shaping: not how to deliver services (process) and CSOs and service users should also be should be based on price, not cost. involved in the planning, design and Benefits: All CSOs involved, or potentially delivery of the service, including more involved, in contracting to provide public self-help and voluntary action services. • Procurement: Service users, and the CSOs representing them, should be involved in judging preferred tenders, provided they are not also part of the system of provision

61 Part 5 Government’s role

5.4 Developing a social investment market

There is a nascent but underdeveloped The Government has announced plans to The payment-by-results model, in which social investment market in the UK, with establish the bank, to be called the Big funding is linked to outcomes delivered an ever-widening range of participating Society Bank (BSB), using all the unclaimed and only paid once results have been investors, funds, advisors and, importantly, assets from dormant accounts. It is to achieved, was first introduced in the NHS CSOs. A Social Investment Wholesale open by April 2011 with approximately in 2000, then taken up by the Department Bank, funded by unclaimed assets, as £60m available for loans. The British for Work and Pensions (DWP) and the proposed in the Dormant Bank and Bankers Association estimates that this Legal Services Commission in 2008 and Building Society Accounts Act (2009), could increase to £400m over time. Its aim will be rolled out more widely under the could help to facilitate the development of is to help develop the social investment Government’s plans for public service the social investment market. To be market by taking risks which commercial reform. As noted earlier in the case study effective, the bank will need to be fully investors cannot. It is well placed to of Refugee and Migrant Justice, it will independent of government, so that it can leverage in private investment and can present new risks to CSOs without access take risks itself (rather than having to pass operate in the space which covers both to development and working capital or a them on to borrowers) and can use its concessionary and near-commercial means of managing cash flow. Further resources to attract private investment; it finance. work is needed to identify what funding should also have an explicit wholesale mechanisms need to be in place to enable Attracting investment through function so it does not compete with CSOs to manage these risks appropriately. creating new incentives existing retailers, such as Charity Bank, The national deficit has underlined the Clearly, addressing the root causes of Triodos or Unity Trust Bank, and thereby need to find cost-effective solutions to social problems and thereby reducing distort, rather than develop the market. It social problems and a means of creating demand is the most cost-effective way of will need at least £250m of capital from incentives that will enable providers to dealing with social ills, for example working the outset for it to operate with minimal focus on prevention and on achieving with offenders to reduce recidivism or risk to its initial capital. long-term benefits and cost-savings. For with young people to promote healthier this reason government policy has given lifestyles. But up-front investment is greater prominence to paying providers needed to pay for such interventions while on the basis of the results they achieve, still providing the services needed today. including new mechanisms such as Social Impact Bonds.

However, the need for capital is something Health warning which most types of CSOs share, apart from micro organisations operating on a The new approaches to capitalising the completely voluntary basis. Grants will sector discussed in this part of our report continue to be the main source of capital will not be relevant to all types of CSOs for most CSOs, but the challenge for the and will continue to represent a small, but sector is to try and choose the most growing element of the funding of the appropriate source of finance for sector. particular needs – and to only use grants, when only grants will do.

62 Funding the Future Social Impact Bonds (SIBs), now being Private investors Impact-led capital is much harder to piloted by Social Finance in Peterborough Will private investors be willing to invest attract into the sector, but is very Prison with the involvement of CSOs, have for a social as well as a financial return? A important in meeting the needs of many been developed as a means of raising small but growing number of wealthy organisations to secure more development voluntary, and potentially private philanthropists have actively supported and working capital. Some trusts and investment to fund services up-front. efforts to supply investment capital to foundations, such as the Esmée Fairbairn Investors will receive a return on their CSOs. Examples include the use of venture Foundation, have begun to help by using a investment from government equivalent philanthropy through such organisations broader range of financial instruments, for to a proportion of any savings made as a as the Impetus Trust and the Private Equity example, by offering loans where other result of the intervention. This has an Foundation, as well as social lending and lenders are deterred by the risk profile. interesting effect on risk management to venture capital approaches through This enables the efficient recycling of the advantage of both CSOs and organisations such as CAF Venturesome or capital while ensuring that grants are still government. CSOs have a stable revenue Bridges Ventures Social Entrepreneurs available for those who need them. stream that focuses on outcomes, rather Fund at the national level and a range of Relatively little progress has been made in than outputs, with financial risks borne by community development finance getting more donors to support or invest the investor, while government pays only initiatives at the local level. Their success in capital funding, particularly to smaller when success has been achieved. The will encourage others. organisations, although there have been Peterborough Prison pilot and some There is an important distinction to be some notable exceptions like Scope’s further pilots are being supported by BIG; made between: Venture Philanthropy package (see box on if they succeed, private investment may next page) and the social investment then begin to flow into the public and civil • Finance-led investment, where financial bonds developed by Citylife in Sheffield, society sector. The Spending Review’s return comes first with social impact – a Newcastle and East London, where the reductions in spending on prisons gives welcome but subsidiary benefit; and capital raised is invested in social housing, added importance to these pilots proving • Impact-led investment, which is but the interest generated is used to fund successful. effectively the reverse, though the community projects. investor expects to receive some However, there are two critical issues repayment70. There have also been a small number of regarding SIBs. First, agreeing the metrics on-line initiatives, such as Kiva, which may to demonstrate success is particularly Finance-led capital to the sector has also have wider potential. Kiva is a web- difficult when, as is often the case, multiple increased significantly in recent years as based intermediary that encourages and outcomes are involved. Secondly, actually both the commercial and the social banks enables people to invest in projects to realising the saving from the preventative have done more business with the sector, alleviate poverty through the provision of action requires another step. Empty prison particularly through secured loans (e.g. micro-finance. cells don’t save money – something has to mortgages) for property purchases or be closed and some staff have to be laid off working capital for cash flow. However, Unlike a charitable donation, the before funds are saved. For these reasons, few CSOs are able to repay unsecured investment is in the form of a loan which is it is likely that the best potential for SIBs loans at commercial prices. paid back. It was first established in the will be at the local level in the context of United States and has been operating in place-based budgeting, where it may be the UK since 2008. To date it has attracted easier to overcome these two challenges, $162m in loans and over 500,000 lenders. particularly if local government finance arrangements become more flexible.

63 Part 5 Government’s role

5.4 Developing a social investment market

There is an important distinction to make Also a charity wanting to invest £20m of Creating a market between finance-led and impact-led reserves in social enterprises was unable to Despite the reservations outlined above, it capital. Commercial and social banks have find financial institutions willing to manage is possible to create a market for CSOs’ provided more finance-led capital lately, a portfolio of this size; the maximum they services. Risks for investors can be particularly for property purchases. were willing to take on managed (but not necessarily eliminated) Commercial investment is only was £2m-3m72. by applying good business practice, for appropriate under certain conditions example, in thorough due diligence of In a recent report73, CAF Venturesome where the interests of investor and investment proposals, charges on property concluded: ‘The majority of existing investee coincide, i.e. where there is an or on reserves or partnership funding with vehicles for social change are simply not opportunity to maximise social and trusts and foundations, which can provide able to deliver commercial returns. Their financial returns. An example could be the grant element required to make the activities and business model cannot where development costs can be secured investment viable. Investors can be afford it. against fixed assets (as in the case of a incentivised, and their initial reluctance housing association or care home) and This does not mean that these overcome by, for example, social there are predictable income streams for organisations are ineffective or inefficient, recognition of individual philanthropists, covering the cost of servicing a loan. or that they should be denied access to returns on social impact bonds, matched appropriate and affordable capital so that funding schemes and a varying menu of Two recent developments give pause for they may become more resilient. It does, investment opportunities offering a range thought. Triodos Bank has closed its £3m however, have implications for the financial of different financial and social returns. social investment fund, which had been set expectations attached to investors’ capital, up to make equity investments in growing and the type of capital that the sector can social enterprises, because there were not afford.’ enough businesses that met their criteria71.

The revenue for supporting each service- This means that every donor who gives Scope’s Grangewood user is funded by the local authority and £1,750 and lends Scope £7,000 interest Venture Philanthropy Scope’s business model means they can free for three years generates £18,000 run the service at a surplus, which could investment in the project, i.e. leveraging package support a £750,000 mortgage at a by a factor of 10. Each unit-holder will be semi-commercial rate from lenders such as issued with legal documentation and a Scope has £20m of property, which is Charity Bank, Triodos and Unity Trust ‘loan note’. Bank. However, they will not lend until the currently home to around 600 disabled Scope has a number of high-net-worth remaining £1.05m is in place. adults. Most of these properties need supporters whom they are now modernisation. One example is Scope’s plan is to raise the deposit by approaching with this proposition. If Grangewood in Essex, where Scope plans selling ‘packaged units’ to individual successful, they plan to use this model to to build 15 new flats where disabled investors, consisting of: finance around £40m redevelopment of people will be able to live independently. other services. £1,750 Donation The total cost of the project is £2.7m £1,750 Source: Interview with Jason Suckley, Scope (£18,000 per unit), but Scope already owns Gift aid and tax relief the land, so needs to raise £1.8m to £7,000 Three-year interest-free loan (repaid finance the project. from sale of existing building) £10,500 £7,50 0 Commercial loan to ‘match fund’ each investor unit £18,000 Total for each unit

64 Funding the Future The Funding Commission would also like The Government’s plans for the Big We are encouraged by the initiatives being to see the idea of a UK version of the US Society Bank are an important new commissioned by NESTA to develop new Community Reinvestment Act being development in this field and must be used financial mechanisms for the Big Society explored, perhaps through the medium of to help develop the market further Bank. We share Social Finance’s view74 that community development finance through underwriting new mechanisms it could be possible to attract an additional initiatives, as a means of requiring banks to for, and approaches to, social investment. £10bn of private investment into the civil invest more in their local communities. society sector over the next 10 years, These could include blended finance provided the right financial mechanisms Through better contract negotiation, packages combining philanthropy and are developed and appropriate support is internal management efficiencies and commercial investment, as well as provided by the Big Society Bank. For acquisition and use of assets, CSOs can guarantees for institutions, such as trusts example, this could be more than achieved ensure financial returns for investors. They and foundations, to encourage the use of by attracting: will need better business skills, as noted in their assets for social investment. At the Section 2.2, and would also benefit from same time, local initiatives, such as local • 5% of the £68bn of charities’ new accounting protocols which social investment bonds for cities like investments (= £3.4bn) distinguish between earned and voluntary Birmingham or Manchester to attract • 0.5% of institutionally managed assets income and identify more clearly and investors who would benefit from, or are (=£2bn) transparently how their reserves and committed to, the improvement of local • 5% of the £92bn of retail investments assets are being used. services have the potential to attract new in UK ISAs (=£5bn) investment. into investments that generated a social as well as a financial return.

- Social Gilts to attract investors Recommendation 11 – concerned with social impact Attracting new - Social Investment Bonds for local areas or specific causes private capital - Social Impact Bonds within the context of place-based budgeting The Government should ensure that the - Community Share issues or Citylife Big Society Bank (BSB) plays a lead role in style bonds for particular projects attracting new private capital into the • Earmarking a proportion of the resale of sector through: national bank shares into the BSB for use in this way • Working with the Treasury, relevant • Capitalising a range of social investment financial institutions and sub-sector agencies to invest in CSOs working in umbrella bodies to explore the potential these service areas (see for developing and, where necessary, Recommendation 6). underwriting investment mechanisms for particular types of service areas Benefits: Any CSOs planning to provide (social and health care, prevention of services and needing to develop capacity reoffending, services for young people, to respond to these developing markets. etc), including:

65 Part 5 Government’s role Supporting the Commission’s 5.5 recommendations

We have been very mindful of the planned reductions in public expenditure in Recommendation 12 – formulating our recommendations and Government have therefore only proposed two areas for direct government investment – the endorsement Restructuring Fund and the small-grant programmes. The Government is asked to endorse The overall costs and outcomes of our all the recommendations in this report proposals are discussed in Section 6. As (listed below) and to work with NCVO can be seen, we believe they will not only and others in taking them forward: help generate new income for the sector, 1. Increasing Impact Fund but increase efficiency and save money. We therefore ask the Government to lend 2. Financial capability programmes its support to all our recommendations , 3. Investment of trusts’ and which will help further the Government’s foundations’ assets stated aim of getting more resources into the sector, and, where appropriate, help 4. Good grant-making persuade others to invest in them. 5. The Better Asking campaign 6. Trading up 7. Mutual benefit with the commercial sector 8. Restructuring Fund 9. Big Society grants 10. Commissioning for the future 11. Attracting new private capital. Benefits: All CSOs.

66 Funding the Future 5.6 Other actions

• Extension of the Merlin Standard code • Exploration of a Community • Further development of community- of conduct developed by DWP for Reinvestment Act, adapted to the shares programmes (as proposed by contractors to ensure good practice circumstances of the UK (perhaps the Development Trust Association) towards CSO sub-contractors through specialist intermediaries like • Further development of place-based community development finance budgeting. institutions)

5.7 Ensuring all types of CSO benefit

Investing in restructuring must be done in Commissioning for the future should a way that embraces smaller CSOs and recognise the scope for national CSOs recognises the need to ensure the voice of and local community groups to work with different equalities groups and other local people to develop new forms of specialist interests continue to be heard. services. Providing funding for demand led services Attracting new private capital into the targeted at groups with particular support sector will mainly benefit larger CSOs, but needs will also be important. if initiatives such as Social Impact Bonds Developing the Government’s Big Society are developed locally within the context initiative with grant support explicitly calls of place based budgeting, there could be for a range of publicly funded grant opportunities for local CSOs, particularly programmes to help people help if they form consortia with other local themselves, as well as recognising the CSOs working in related fields. importance of working with existing organisations and networks of LSDOs.

67 Implementation 6

68 Funding the Future 6.1 Lead responsibilities and timeline

NCVO, working with others, has the overall responsibility for the follow up on this report. Details of lead responsibilities and the timeline for implementing our recommendations are given in Annexe 3.

6.2 Provisional costings

The total cost of all our recommendations, including the costs of the proposed funds, is provisionally estimated , in real terms, at £117.4m, to be met through a combination of voluntary, commercial and government funding. A breakdown of these costs is given in Annexe 4.

69 Part 6 Implementation

6.3 Costs and outcomes

The costs and outcomes of our The analyses below are based on these The balance of the investment we are recommendations fall into four categories four categories. Our provisional estimate is proposing (£105.2m) will have wider, – those aimed at increasing: that an investment of £12.2m in harder to quantify benefits, including Recommendations 5,6 and 7 could achieve increased capitalisation, investment and • Income for the sector an additional £11.3bn p.a. in real terms by borrowing; reduced running costs and • Social investment in the sector 2020. We also estimate that it should be transaction costs; and increased impact • Efficiency/reduced costs possible to attract an additional £10bn for beneficiaries. • Wider social impact. private investment into the sector through the role we propose for the Big Society Bank in Recommendation 11.

Table 6 – Costs and outcomes: increased income

Recommendation Cost Outcome

5 The Better Asking campaign £10m Campaign increases giving income from £11.3bn in 2008/09 to £20bn by 2020

6 Trading up £1.5m Charities’ trading income increases from £8.3bn in 2007/08 to £10bn by 2020

7 Mutual benefit with commercial £700k Charities’ donations from the commercial sector increase organisations from £1.2bn in 2007/08 to £2bn by 2020

TOTAL £12.2m Total increase in income from £20.7bn p.a. to £32bn p.a. by 2020.

Table 7 – Costs and outcomes: increased social investment

Recommendation Cost Outcome

2 Financial capability programmes £2.8m CSOs make better use of available finance and become better capitalised through increasing their reserves from an average of 6 to 12 months ( = total free reserves of £32bn excluding grant-making, research, housing and religion)

3 Investment of trusts’ and £200k Trusts and foundations help CSOs become better foundations’ assets capitalised (see above)

11 Attracting new private capital Part of costs of Increase of £10bn in private capital coming Big Society Bank into the sector by 2020.

70 Funding the Future Table 8 – Costs and outcomes: increased efficiency/reduced costs

Recommendation Cost Outcome

4 Good grant-making £200k Reduced transaction costs; easier to access grant programmes

8 Restructuring Fund £60m Stronger and more sustainable CSOs and infrastructure bodies; reduced back-office costs

10 Commissioning for the future Part of Trust-based commissioning reduces transaction costs; CSOs’ ongoing work share of public sector income could increase from current 2%.

Table 9 – Costs and outcomes: wider social impact

Recommendation Cost Outcome

1 Increasing Impact Fund £15m Increased impact for beneficiaries; CSOs better placed to secure funding

9 Big Society grants £27m Growth in self-help and voluntary action

12 Government endorsement N/A Funding Commission’s recommendations more likely to receive financial backing from others.

71 Annexes

72 Funding the Future 73 Annexes

Annexe 1 Methodology

The Commission began work in February Submission of evidence Presentations to Funding 2009 with an initial consultation exercise Papers were submitted by the following Commission meetings involving an on-line questionnaire organisations as evidence to the Karl Wilding, Head of Research, (33 responses), a call for evidence, some Commission: NCVO, on the potential of ICT initial meetings and presentations at to transform giving and on the Big Lottery Fund Commission meetings. During 2010, the NCVO 2010 Almanac findings Commission has consulted and met a wide CAF Venturesome Guy Yeomans, Consultant, on the range of funding experts (see Annexe 2) Citylife potential of ICT to transform giving and commissioned papers on key issues of interest. Unless otherwise stated, these Community Foundation Network Peter Backus, Third Sector Research are the sources for the evidence on which Centre, on Tescoisation Children England this report is based. Steve Bridger, Redesigning Charity for New Philanthropy Capital the Digital Age, on the potential of ICT National Association for Voluntary and to transform giving Community Action John Kingston, Director, CAF Triodos Bank Venturesome, on social investment Volunteering England Dame Julia Cleverdon, Business in the Community, on the relationship with Initial meetings business David Carrington, Consultant Tanja Rasmussen, Business in the Community Foundation Network Community, on the relationship with Joseph Rowntree Foundation business Dame Mary Marsh, Director, Margaret Bolton, Consultant, on Clore Leadership Social Programme capacity-building in arts organisations National Association for Voluntary and Community Action South Yorkshire Funding Advice Bureau Office of the Third Sector, Cabinet Office Voluntary Action Sheffield

74 Funding the Future Website papers Commissioned papers • Public sector funding: (see http://www.ncvo-vol.org.uk/ (see http://www.ncvo-vol.org.uk/ – Sarah Flood, The Government fundingcommission) fundingcommission) Funding Relationship: Its impact on the sector and future challenges and Between June and September 2010 a • Think piece: opportunities, March 2010 series of papers were published on the – David Carrington, Funding Our • Individual giving: Funding Commission website as a basis Future: challenges and opportunities – Joe Saxton and Michele Maddon, for consultation: in the next decade, January 2009 nfpSynergy, How Can the New • Capitalisation and Social Investment: 1 Capitalisation and social investment Government Increase the Size of – Joe Ludlow, Capitalising the Voluntary the Fundraising Cake?, May 2010 2 Trading and Community Sector: a review, – Guy Yeomans, ICT Trends and March 2010 3 Effectiveness Fundraising: Five-Year Perspective, – Joe Ludlow, Capital, Capacity Building May 2010 4 Public sector funding and Impact, March 2010 – Richard Gutch, Prospectus, – Nick Wilkie and others, Unclaimed 5 Trust and foundations Fundraising Director Interviews, Assets: funding for young people and May 2010 6 National Lottery social investment, London Youth, – Katherine William-Powlett, NCVO April 2010 7 Individual giving Sustainable Funding project, • Effectiveness: Innovation in Fundraising, June 2010 8 Commercial sector support – Professor Peter Wells and Dr Chris – Dr Beth Breeze, Donor Centred Dayson, Centre for Regional Economic Philanthropy: Putting Givers at the and Social Research, Sheffield Hallam Heart of the Charity Universe, University, Measuring the Impact of July 2010 Third Sector Infrastructure – Guy Yeomans, Data Growth, Organisations, June 2010 August 2010 – Esther Ridsdale, NCVO Collaboration Team, Collaboration and Merger Case Studies, June 2010 – Stephen Quashie, NCVO Valuing Infrastructure Project, Boosting Local Effectiveness: the future funding of infrastructure support, June 2010 – Bill Freeman, Director of Consultancy Services, NAVCA, Future Local Infrastructure Scenarios, August 2010

75 Annexes

Annexe 2 Interviewees and meetings

Interviewees/sources/consultees Jane Hobson, Head of Policy, Mark Rosenman, Director, Caring Charity Commission for Change, Washington General Andrea Humphrey, Senior Strategy Sue Sayer, CEO, United Response Lesley-Ann Alexander, CEO, Royal and Policy Adviser, Radar Alison Seabrooke, CEO, National Institute for Blind People, and Richard Jenner, CEO, Community Development Foundation Chair, Association of Chief Executives of Advice Services Alliance Voluntary Organisations Nick Seddon, Deputy Director, Arjumand Kazmi, Head of Policy, Reform and Chair, Directory Lynne Berry, CEO, WRVS Voice for Change of Social Change Julie Bishop, CEO, Law Centres Federation Sarah King, CEO, Reach Robin Simpson, CEO, Fiona Blacke, CEO, National Youth Agency John Kingston, Director, CAF Voluntary Arts Network Sue Bott, CEO, National Centre Venturesome, and Chair, Association of Jeremy Taylor, CEO, National Voices for Independent Living Charitable Foundations Hannah Terrey, Head of Policy and Public David Carrington, Consultant Stephen Lloyd, Senior Partner, Affairs, CAF James Cathcart, CEO, British Youth Head of Charity and Social Enterprise Danielle Walker Palmour, CEO, Council Department, Bates Wells and Braithwaite Friends Provident Foundation Rosie Chapman, Director of Policy and Dame Mary Marsh, Director, Kevin Williams, CEO, KIDS Effectiveness, Charity Commission Clore Social Leadership Programme Simon Denegri, CEO, Association Steve Matthews, CEO, Mentoring Capitalisation and social investment of Medical Research and Befriending Foundation James Alexander, Trustee Kathy Evans, Deputy CEO, Jonathan Moore, CEO, Suffolk Association Community Action Network Children England of Voluntary Organisations Margaret Bolton, Consultant Paul Farmer, CEO, Mind, and Rachel Newton, Head of Policy Clare Cooper, CEO, Trustee, Directory of Social Change and Research, Urban Forum Mission Models Money Clare Gilhooly, CEO, Cambridge House Hashmukh Pankhania, CEO, CEMVO David Hutchison, CEO, Social Finance Philip Hadley, Research Projects Baroness (Jill) Pitkeathley, Chair, Office for Jonathan Lewis, CEO, Officer, Campaigning, Collaboration Civil Society Advisory Group Social Investment Business and ICT Team, NCVO David Praill, CEO, Help the Hospices Elizabeth Liston-Jones, Richard Hawkes, CEO, Scope Orla Quinlan, Head of Deputy Director Social Finance, Rohan Hewavisenti, Finance and Business Programme Funding, Oxfam Office for Civil Society, Cabinet Office Director, British Red Cross Imelda Redmond, Carers UK Bernie Morgan, CEO, Community Development Finance Association. Andrew Hind, former CEO, Campbell Robb, CEO, Shelter Charity Commission

76 Funding the Future Social Lenders in the North East Ceri Jones, Head of Policy, Paul Grant, Chief Officer, Social Investment Market Group Social Enterprise Coalition Voluntary Action NE Lincolnshire David Kane, Research Officer, NCVO Andy Gregg, CEO, Trading Gareth Morgan, Charites Evaluation Services Claire Antrobus, Consultant, Professor of Charity Studies, Lorraine Jarvis, Chief Officer, Independent Arts Management Sheffield Hallam University Chelmsford CVS Andrea Brolly, Policy Development Sally Reynolds, Director, Social Firms UK Ben Kernighan, and Review Team, Charity Commission Norman Rides, Project Manager, Deputy Chief Executive, NCVO Graham Collins, Sustainable Funding Community Transport Association Matt Leach, CEO, Project Manager, NCVO Colin Tweedy, CEO, Capacitybuilders Peter Couchman, CEO, Arts and Business David Membrey, Deputy Chief Executive, Plunkett Foundation Karl Wilding, Head of Research, NCVO Charity Finance Directors Group Helen Donoghue, Director, Olof Williamson, Sustainable Funding Stephen Quashie, Head of NCVO Charity Tax Group Project Officer, NCVO Valuing Infrastructure Project Sarah Flood, Consultant Alex Whinnom, Director, Greater Bill Freeman, Director of Consultancy Effectiveness Manchester Centre for Voluntary Services, National Association for Adrian Barritt, Chief Officer, Organisations Voluntary and Community Action Adur Voluntary Action Julie Wilkes, CEO, Skills – Third Sector John Goodman, Head of Policy, Martin Brookes, CEO, Hal Williams, former President, Co-operatives UK New Philanthropy Capital Rensselaerville Institute, New York Martin Green, CEO, Stephen Bubb, CEO, Association of Chief National Infrastructure Partnership The English Community Care Association Executives of Voluntary Organisations Verity Haines, National Arts Director, Andrew Croft, CEO, Community Action Public sector funding Arts and Business Network Lord (Michael) Bichard, former Peter Holbrook, CEO, Kevin Curley, CEO, National Association Director Institute of Government Social Enterprise Coalition for Voluntary and Community Action Neil Cleeveley, Director of Policy and Alastair Wilson, CEO, School Justin Davis Smith, CEO, Communication, National Association for Social Entrepreneurs Volunteering England for Voluntary and Community Action Jo Hill, Director of the Caroline Diehl, CEO, Media Trust Leesa Herbert, Head of NCVO Sustainable Funding Project Advantage Programme, UnLtd Sandra van der Feen, London Voluntary Services Council

77 Annexes

Annexe 2 Interviewees and meetings

Pauline Kimantas, Head of Commissioning Trusts and foundations Ken Burnett, Consultant and Procurement Team, National Matthew Bowcock, Chair, Sophie Chapman, Policy Manager, Youth Association for Community and Community Foundation Network Volunteering and Charitable Giving, Voluntary Action David Emerson, CEO, Association Office for Civil Society, Cabinet Office John Marshall, Programme Manager, of Charitable Foundations Amanda Delew, Consultant, and former Office for Civil Society, Cabinet Office Stephen Hammersley, CEO, Director of Giving Campaign Jeff Masters, Secretary to the Commission Community Foundation Network Roberta d’Eustachio, on 2020 Public Services Gaynor Humphreys, Chief of Staff for the Ambassadors Ed Mayo, CEO, Cooperatives UK CEO, London Funders for Philanthropy programme Andrew Purkis, Consultant Dr Diana Leat, Consultant Nick Ferguson, Chair, Institute Barry Quirk, CEO, Sara Llewellin, CEO, for Philanthropy London Borough of Lewisham Barrow Cadbury Trust David Gold, former Susanne Rauprich, CEO, National Council Janet Morrison, CEO, Independent Age Chair of Philanthropy UK for Voluntary Youth Services Matthew Smerdon, Deputy Director, Paddy Griffiths, Pat Samuel, Deputy Director, Public Sector Baring Foundation Strategy Partner, Work Club Partnerships, Office for Civil Society, Clare Thomas, Chief Grants Officer, Ben Harrison, Policy Manager, Cabinet Office City Bridge Trust Charity Law and Regulation, Office for Civil Society, Cabinet Office Ben Wittenberg, Director of Policy, Julia Unwin, CEO, Directory of Social Change Joseph Rowntree Foundation William Hoyle, CEO, Steve Wyler, CEO, Development Charity Technology Trust Trust Association Individual giving Alison Hutchinson, CEO, NCVO Public Services Network Nick Aldridge, CEO MissionFish (UK) Pennies Foundation Advisory Group Mark Astarita, Director of Fundraising, Theresa Lloyd, Consultant British Red Cross Plum Lomax, New Philanthropy Capital National Lottery Maggie Baxter, Chair of Rosa, and former Peter Maple, Senior Lecturer Mark McGann, Deputy Director Deputy Chief Executive, Comic Relief and Research Fellow, Department of Policy, Big Lottery Fund Lord (Richard) Best, Chair Giving Forum of Management, London South Gerald Oppenheim, former Director of Lindsey Boswell, former CEO, Institute Bank University Policy and Partnerships, Big Lottery Fund of Fundraising Alistair McLean, CEO, Peter Wanless, CEO, Big Lottery Fund Pauline Broomhead, CEO, Foundation Fundraising Standards Board

for Social Improvement

78 Funding the Future Hilary McVitty, Director of Mike Kelly, CSR Director, KPMG Meetings with government officials Communications, Pennies Foundation Mark Thain, Associate, Rolande Anderson, former Director Jackie Mendoza, CEO, Rosa Global Community Investment, General, Office for Civil Society, Cabinet Office Professor Cathy Pharoah, Director Barclays Corporate Affairs of Centre for Charitable Giving and Mark Wakefield, Corporate Citizenship Nick Burkitt, Head Big Society Programme Philanthropy, Cass Business School, and Corporate Affairs Manager, IBM Team, Communities City University and Local Government David Ramsden, CEO, Fundraising Ben Gill, Third Sector Team, HM Treasury BBC Children in Need Steve Cheshire, Director of Fundraising, James Paton, Head of Housing National Autistic Society Jeremy Sherwood, Branch Head, Regeneration and Voluntary Sector Team, Charity Tax Branch, HM Treasury Burger Edwards, Director of Business HM Treasury Development, Cambridge House Asheem Singh, Director Civil Society Jackie Westlake, Head, and Social Innovation, ResPublica Andy Harris, Director of Fundraising, Voluntary Sector and Social Action for Children Enterprise Team, Communities Dr Salvatore LaSpada, CEO, and Local Government Institute for Philanthropy Dominic Lennon, Interim Director of Fundraising, Leonard Cheshire Disability Office for Civil Society Advisory Group Andy Thornton, CEO,

Citizenship Foundation Helen Mitchell, Director of Fundraising, KIDS Meetings with civil society sector The Giving Forum organisations/individuals Louise Parkes, Director Institute of Fundraising’s Equalities Focus Group (7) of Fundraising, Shelter Appeal Directors’ Group Infrastructure Bodies (25) Jason Suckley, Director Meeting with fundraisers hosted of Fundraising, Scope Interested Individuals (15) by Community Foundation Network National Charities and Specialist and nfpSynergy Joel Voysey, Head of Fundraising, Umbrella Bodies (29) United Response Commercial sector support Francis Webb-Thurgood, NCVO staff group (7) Jo Ensor, Head of Advisory and Consulting, Head of Fundraising, Carers UK Newcastle Focus Group (9) Charities Aid Foundation Norfolk Focus Group (13) Fiona Halton, CEO, Pilotlight Consultation meetings The following meetings were held in Amanda Jordan, Co-Chair, August/September 2010 to discuss Corporate Citizenship the report’s draft recommendations

79 Annexes

Annexe 3 Lead responsibilities and timeline

Annexe 3 – Lead responsibilities and timeline

Recommendation Who Start up (2011) Output Outcome

1 Increasing BIG and other major BIG and IFF allocate Fund runs 2012-15 CSOs are better at Impact Fund funders in the funds and consult on (3 years) developing measuring Intelligent Funding roll out of the fund and reporting on their Forum (IFF) with impact sub-sector umbrella bodies

2 Financial capability CFDG with NCVO, CFDG and others Programme runs CSOs have greater programmes NAVCA, ACEVO, secure funds from the 2012-15 (3 years) financial capability Skills – Third Sector financial services and others industry and members of IFF and consult on roll out of the programme

3 Investment ACF ACF secure support Survey in 2012; ACF members are of trusts’ and from major trusts and guidance published in aware of good practice foundations’ foundations for a 2013; dissemination in social investment assets survey of members programme 2014-15 social investment practices

80 Funding the Future Annexe 3 – Lead responsibilities and timeline

Recommendation Who Start up (2011) Output Outcome

4 Good grant-making ACF and Funder ACF’s survey above Survey in 2012: Grant makers are more Forums; NCVO, should also cover guidance published in aware of good practice CAF and ACF on grant-making practices; 2013; dissemination in grant-making; Funder data collection Funder Forums discuss programme 2014-15. forums have reviewed the Funding Funder forums identify their grant-making Commission’s report. opportunities for practices and ensured a Plans for getting better small-grant range of small grant data about trusts and programmes. (2012- programmes. Less foundations developed 13). Better data about money wasted through trusts and foundations wrongly directed included in NCVO applications. Smaller Almanac from 2013 CSOs have better access to funding

5 The Better NCVO with IoF, NCVO secure Campaign runs from CSOs are better at Asking campaign ACEVO, CTN and sponsorship for the 2012-18 (6 years) asking and better at CAF with others campaign and establish engaging with those governance who give

6 Trading up NCVO and SEC NCVO and SEC consult Social investment Charities and social with others on the roll out of the agencies have more enterprises are getting programme and secure resources to invest; better access to capital, the resources required new models for markets and skills partnership have been promoted and better advice and training is available

81 Annexes

Annexe 3 Lead responsibilities and timeline

Annexe 3 – Lead responsibilities and timeline

Recommendation Who Start up (2011) Output Outcome

7 Mutual benefit with NCVO, CAF and BITC NCVO, CAF and BITC More and better CSOs are more aware the commercial sector with others establish the working brokerage schemes and of how to develop group, consult on its information resources partnerships with scope and secure the have been developed business resources for its work (2013-17)

8 Restructuring Fund Cabinet Office (OCS) OCS allocates £20m Fund runs 2012-15 Increased levels with NCVO, NAVCA p.a. for 3 years and (3 Years) of collaboration and others consults NCVO and including mergers others on how best to are taking place roll out the Fund. NCVO, NAVCA and others play lead role in infrastructure mergers

9 Big Society grants Cabinet Office (OCS) OCS and other depts. More small grant Small local CSOs have and other depts. with allocate funds for light programmes received support to NAVCA, CFN and touch grant (2012- 20) develop self help and others programmes and agree community action fund arrangements initiatives with other agencies such as CFN

82 Funding the Future Annexe 3 – Lead responsibilities and timeline

Recommendation Who Start up (2011) Output Outcome

10 Commissioning for Cabinet Office (CO) CO develops CO promotes New approaches to the future with NCVO, ACEVO, commissioning for commissioning for commissioning have NAVCA and others change approach in change approach to been developed with partnership with public sector greater CSO NCVO and others commissioners (2012 involvement onwards)

11 Attracting new Cabinet Office (OCS) Policy directions to BIG BSB has successfully Increase in private private capital through the Big Society on the setting up of developed new and social investment Bank (BSB) BSB, including in its financial mechanisms in the sector remit the development for individual investors of financial mechanisms and has helped for attracting private capitalise social investment investment agencies (2012-20)

12 Government Cabinet Office CO confirms CO has helped Recommendations endorsement Government implement the FC’s 1-11 have been support for FC recommendations successfully taken recommendations (2012 onwards) and, forward and supports NCVO at a later date, has and others in securing incentivised donations commercial sector in final year of Better sponsorship Asking Campaign (2017-18).

83 Annexes

Annexe 4 Provisional costings

Annexe 4 – Provisional costings

Recommendation Breakdown of costs Total costs £

1 Increasing Impact Fund • 1,000 grants of average of £13.5k £15m over 3 years • Management and admin. (£1m =6.6%) • Development of outcomes framework, communication and shared learning (£500k)

2 Financial capability • 10,000 bursaries of £100 each to enable smaller £2.8m over 3 years programmes CSOs to attend programmes (£1m) • Development of resource materials, website, interactive learning and support (£1.8m)

3 Investment of trusts’ and • Survey (50k) £200k foundations’ assets • Development and publication of guidance (£50k) • Dissemination programme (£100k)

4 Good grant-making • Survey as above £200k • Development and publication of guidance (£50k) • Dissemination programme (£100k) • Extra Almanac data collection costs (£50k)

5 The Better Asking campaign • Training and support activities (£7m) £10m over 6 years • Media campaign (£2m) • Management, administration and development of new measures for evaluating cost and effectiveness of fundraising (£1m = 10%)

6 Trading up • Increasing access to capital (£225k) £1.5m over 3 years • Increasing access to skills (£475k) • Increasing access to markets (£300k) • Awards scheme and PR for social entrepreneurs (£500k)

84 Funding the Future Annexe 4 – Provisional costings

Recommendation Breakdown of costs Total costs £

7 Mutual benefit with • 20 consultation events (£100k) £700k over 5 years commercial organisations • Support for working group over 2 years (£200k) • Dissemination of information and resources over 3 years (£400k)

8 Restructuring Fund • 750 grants to CSOs at an average of £40k (£30m) £60m over 3 years • 375 grants to national/local support organisations at an average of £40k (£15m) • 20 loans at an average of £500k (£10m) • Management, administration and evaluation (£5m = 8.3%)

9 Big Society grants • 2,000 grants p.a. for 5 years of between £500 and £5,000 (£25m) £27m over 5 years • Management and administration (£2m = 7.4%)

10 Commissioning • Part of ongoing work N/A for the future

11 Attracting new • Part of costs of Big Society Bank, being funded N/A private capital through unclaimed assets

12 Government endorsement • No initial cost N/A • Possibility of incentives for final year of Better Asking campaign (not included)

TOTAL £117.4m

85 Notes and references

Notes and references

1 The UK Civil Society Almanac 2010 12 See note 9 above. 29 Volunteering England UK, case studies (NCVO, 2010). submitted to the Funding Commission 13 UK Giving 2009 (NCVO and CAF, (July 2010). 2 The NCVO Almanac data on charities Sept. 2009). excludes housing associations, faith 30 NAVCA’s analysis of the responses to 14 Beth Breeze, Coutts Million Pound groups, trade associations, independent questions 18-20 of the National Survey Donors Report (Coutts and University of schools and those charities that are not of Third Sector organisations (2010). Kent CPHSJ, 2009). independent of government, such as NHS 31 Bill Freeman, Director of Consultancy charities. 15 Charitable causes are defined more widely Services, NAVCA, Future Local than charities and include religious bodies, 3 UK Giving 2009 (NCVO and CAF, Infrastructure Scenarios, paper private schools and other causes excluded Sept. 2009). commissioned by the Funding from the NCVO definition of charities. Commission (Aug. 2010). 4 Scenarios for Civil Society 16 Beth Breeze, Coutts Million Pound (Carnegie UK Trust, 2007). 32 As above. Donors Report (Coutts and University of 5 Convergence: How five trends will reshape Kent CPHSJ, 2009). 33 David Carrington, Funding Our Future: the social sector (La Piana Consulting, challenges and opportunities in the next 17 As above. Nov. 2009). decade, paper commissioned by the 18 mvaconsultancy, Decision making in Funding Commission (Jan. 2009). 6 Julia Unwin, The Grantmaking Tango: hard times: survey of the impact of the issues for funders (Baring Foundation, 34 According to UK Giving 2009 (see note 3 economic downturn on charities June 2004). above), individual giving to charitable (Charity Commission, Feb. 2010). causes as a whole (see note 15 above) 7 The UK Civil Society Almanac 2010 19 UK Workforce Hub, Skills Survey of was £9.9bn. In addition, according to (NCVO, 2010). Charities and Community and Voluntary the Coutts Million Pound Donors Report 8 As above. Groups (NCVO, 2007). (see note 14 above), a further £1.4bn was contributed by philanthropists giving 9 The NCVO Almanac typology does not 20 See http://www.ces-vol.org.uk/ more than £1m p.a., thus bringing the use ‘trading on the open market’ as a 21 See http://www.philanthropycapital.org/ total to £11.3bn. source, as it categorises income by origin rather than type of activity. In the 22 See http://www.triangleconsulting.co.uk/ 35 Survey for UK Giving 2009. An ongoing Almanac, income from trading on the problem in this area is reliably reporting 23 See http://www.mediatrust.org/ open market is therefore included under change over time. Survey work undertaken individuals (earned), voluntary sector 24 UK Workforce Hub, Skills Survey of by NCVO between 1995 and 2002 (earned), private sector (earned) and Charities and Community and Voluntary indicates that the proportion of the internally generated (trading subsidiaries). Groups (NCVO, 2007). population giving fell from 70% in 1995 to 66% in 2002. A subsequent change in 10 This is a lower figure than the one in UK 25 See http: survey design and question led to a one-off Giving 2009. This is partly because the //www.missionmodelsmoney.org.uk/ step change in the number of people UK Giving data is based on what people 26 Esther Ridsdale, NCVO Collaboration reporting themselves as donors. report they give, whereas the Almanac Team, Collaboration and Merger Case data is based on what charities report 36 Beth Egan, The Widow’s Might: how Studies, paper commissioned by the they receive. There are also differences charities depend on the poor (Social Funding Commission (June 2010). between the definition of charities and Market Foundation, 2001). charitable causes (see note 15). 27 See http://www.tidesfoundation.org/ 37 Office of National Statistics, Survey 11 UK Giving 2009 (NCVO and CAF, 28 Shared Intelligence, Learning from of Personal Incomes 2007/08, ONS Sept. 2009). Mergers (Capacitybuilders, July 2010). (updated Jan. 2010).

86 Funding the Future 38 Polly Toynbee and Professor David Walker, 50 Correspondence with Alistair McLean, 62 Ed Cox and Katie Schmuecker, Growing the Unjust Rewards (Granta, 2010). CEO, Fundraising Standards Board. Big Society: encouraging success in social enterprises in deprived communities 39 See http://www.philanthropyuk.org/ 51 Beth Breeze, Donor Centred Philanthropy: (Institute for Public Policy Research North, Putting Givers at the Heart of the Charity 40 See Johns Hopkins University Center for July 2010). Universe, paper commissioned by the Civil Society’s comparison of 36 countries Funding Commission (July 2010). 63 See Funding Commission Paper 2 on for which data are available. See also the Trading (p.8) for further discussion Hudson Institute’s recent report on global 52 Beth Breeze, How Donors Choose of this issue. philanthropy and the CAF World Giving Charities, Occasional Paper 1, Centre for Index, 2010. Comparisons with the US are Charitable Giving and Philanthropy, 64 See Building Stronger Communities frequently made but questionable in value (Cass Business School, City University, Taskforce, Business and the Third Sector: given the different tax systems and June 2010). innovation in tough times (Cabinet Office, cultures. Office of the Third Sector, 2009). 53 Joe Saxton and Michele Maddon, 41 UK Giving 2009 (NCVO and nfpSynergy, How Can the New 65 See http://www.lsiarchitects.co.uk/ CAF, Sept. 2009). Government Increase the Size of the 66 John Smyth, Guide to Corporate Giving Funding Cake?, paper commissioned by 42 Joe Saxton and Michele Maddon, (Directory of Social Change, 2009). the Funding Commission (May 2010). nfpSynergy, How Can the New 67 Submission by the Community Government Increase the Size of the 54 See http://www.acevo.org.uk/impact Foundation Network to the Funding Funding Cake?, paper commissioned by 55 Joe Saxton and Michele Maddon, Commission (2009). the Funding Commission (May 2010). nfpSynergy, How Can the New 68 Commission on 2020 Public Services on 43 Interview with Peter Maple, Senior Government Increase the Size of the the future of public services. See http:// Lecturer and Research fellow, Department Funding Cake?, paper commissioned by www.2020publicservicestrust.org/ of Management, London South Bank the Funding Commission (May 2010). University. 69 See http://communitycentral.org.nz/ 56 See http://www.sofii.org/ comvoices 44 ONS national population 57 Katherine William-Powlett, NCVO projections (2008). 70 Parthenon Group/Bridges Ventures, Sustainable Funding Project, Innovation in Investing for Impact – case studies across 45 Legacy Foresight report (Sept. 2010). Fundraising, paper commissioned by the asset clauses (2010). Funding Commission (June 2010). 46 Theresa Lloyd, Could the rich give more?, 71 Triodos’ criteria were ‘mature, scaleable article on her website. See http://www. 58 ResPublica, Digital Giving: Modernising social enterprises in the UK that were theresalloyd.co.uk/ (2010). Gift Aid; taking civil society into the digital looking for equity to grow’. age, report written for CAF (Sept. 2010). 47 Institute of Fundraising/NCVO figures, 72 Lindsay Driscoll and Peter Grant, provided by Lindsay Boswell, CEO, Institute 59 Cooperative Bank Ethical Consumerism Philanthropy in the 21st century: a of Fundraising. report (2009). discussion paper for the Honorary 48 Richard Gutch, The Future Role of 60 YouGov Poll, Nov. 2009, commissioned by Treasurers’ Forum (Cass Business School, Fundraising, Third Sector (6 July 2010). the Social Enterprise Coalition. City University, 2010). Fuller article available on the Prospectus 61 Based on interview with NCVO’s 73 CAF Venturesome, Building a Resilient Civil website http://www.prospect-us.co.uk/ Sustainable Funding project, which has Society: the Role of Social Investment – fundraising-news been working primarily with medium-sized reflections of an impact-first investor (CAF 49 Charity Commission, Study into Public CSOs since 2000. Venturesome Working Paper, July 2010). Trust and Confidence in Charities (2008). 74 Social Finance, Big Society Bank – scale of opportunity (Oct. 2010).

87 Acknowledgments

The Funding Commission is grateful to the following for their assistance with this report: James Allen, Senior Policy Officer, NCVO Pete Bass, Research Assistant, NCVO Louisa Darian, former NCVO Secretariat Alison Evans, Policy Team Assistant Toby Ganley, former NCVO Secretariat Daniel Hale, former NCVO Secretariat John Pym, freelance editor (pro bono) Karl Wilding, Head of Research, NCVO Michael Wright and Cynthia Akinsanya, NCVO Publications SteersMcGillanEves Design Ltd. All those who have written papers, submitted evidence or been interviewed for the Funding Commission (see Annexes 1 and 2). Our sponsors: Capacitybuilders Joseph Rowntree Foundation Unity Trust Bank

NCVO is a strategic partner of the Office for Civil Society

88 Funding the Future Acknowledgments

89