Beth Breeze, a researcher at the University of Kent, highlights another distinction in the debate on different sides of the Atlantic. “The U.S. has so much philanthropy it almost has the luxury of restricting it. In the U.K., we don’t yet have the situation where we have so much that we can risk losing it.”
Nonetheless, there is a point of similarity. Her research shows that the wealthiest donors in the U.K., like their counterparts in the U.S., give primarily to foundations (where their money is “banked” for future use). Of money directly “spent”, most goes to higher education and international development, followed by arts and culture. Far less supports health and welfare – categories particularly badly hit by austerity measures after the recession.
To critics of the current system, it is unfair that the government is being deprived of taxes that instead go to charities chosen by rich donors, especially when such causes may be significantly different from those prioritized by the state.
Martin Narey, the U.K. government’s adviser on adoption and former head of Barnado’s, the children’s charity that he says rarely received significant contributions from rich donors, argues: “I support tax relief and I’m not saying those giving to the Royal Opera are not generous, but it’s ridiculous to say support should be unlimited when public services need the money just as much.”
However, the argument that elected governments are best placed to identify and prioritize worthy causes is rejected by Chris Flowers, a leading U.S. philanthropist, who stresses the importance of individual choice, flexibility and innovation from donations.
“Reducing relief would reduce my ability to give, and I would rather choose than have some bureaucrat in Washington do so for me,” he says.
While the best charities may be highly effective and entrepreneurial, others suggest not every part of the vast non-profit sector should benefit so easily from automatic tax relief at any level.
Brian Smouha, a former high-profile auditor who created the Coalition for Efficiency to improve charity governance in the U.K., says: “Charities have to provide public benefit. They should describe the quality and the quantity of what they have done. If you don’t measure what you are doing, how can you manage it and find better ways of doing it?”
He cites one organization at which the trustees discussed fundraising extensively but barely examined the services they were responsible for providing. He wants to see an obligation for charities to report regularly on their performance, which could be verified by the Charity Commission or HM Revenue & Customs.
Efforts to reduce tax relief on charitable contributions may be ill structured and the wrong way to attack the current failings of the non-profit sector. But the debate they have sparked on performance and priorities deserves a broader hearing.