Why are levels of philanthropy in the UK so low?

published 13 June 2007

Here are two words I never expected to use in this column: "Hazel Blears". But there is no escaping the fact the Labour party chairwoman said something interesting last week. While her rivals for Labour's deputy leadership have been playing to the gallery with familiar calls to soak the rich, Blears was calling for the Government to do more to encourage philanthropy. "I know many [wealthy people] would like to do more to help poorer people and poorer communities and we should make it more attractive for them to do that. That is much better than wagging a finger about how much they earn."

Blears is tapping into a growing current of opinion that those who've made huge fortunes over the last decade as a result of globalisation and deregulation of financial services should put some of their money back into society. Of course, for Labour politicians like Blears, their motivation is obvious. The Government is strapped for cash and desperate to coerce wealthy people into coughing up a sort of voluntary tax. Labour politicians are also embarrassed by the wealth gap in Britain, with inequality rising on their watch.

But there is certainly a lot of talk about philanthropy in the City these days, where many senior figures worry that the new super-rich need to do more to shore up public confidence in capitalism. Lehman Brothers even includes a platitudinous paragraph on its commitment to philanthropy in its one-page quarterly results fact sheet. And the banks are raiding the charity sector to hire professionals for their private-client wealth-management divisions to advise on their charitable giving.

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But for all the talk, there doesn't seem to be much action. True, there have recently been some acts of generosity by leading City figures. John Studzinski, a top deal-maker now at Blackstone, recently gave £5m to the Tate. But we're yet to see anything like the announcements by Bill Gates and Warren Buffett that they will give substantially to good works. And, disappointingly, poorer people in Britain are still far more generous in terms of the proportion of their income they give away than the rich.

Even when the City tries to make a display of its generosity, it doesn't always go according to plan. When some enlightened bosses last year launched the Private Equity Foundation amid much fanfare, they managed to raise a paltry £5m, much of it contributed by the bankers who sponsored tables at the dinner. London's hedge fund managers may congratulate themselves that their annual ARK dinner this year raised more than £20m. But much of this came from one individual, Ian Wace, the founder of Marshall Wace, who magnificently agreed to triple-match whatever was raised.

In fairness to the hedge fund and private-equity folk, one can say two things in their favour. First, the time to focus on philanthropy is at the end of one's career. Giving away one's money can be a time-consuming business. Many of London's top men are in their 40s and 50s and still at the height of their powers. Far better, they make the most of the opportunities to make money now. Second, many of their fortunes currently exist largely on paper. Until the partners in hedge funds and private-equity groups sell up, much of the money their firms make goes back into the business.

Still, I suspect there is another reason why philanthropy in the UK is so low. The snag is that those with money to give away want to see a return on their charity. That may come in terms of honours, glamorous invitations, or personal satisfaction. Simply contributing doesn't do it for them. Instead, they want to be involved or at least associated with the organisations they support. It's what the management guru Charles Handy has dubbed "the New Philanthropy" the philanthropist as social entrepreneur.

But this idea of the new philanthropy is a dangerous one. Of course, it's popular with donors, because at its heart is the flattering idea that it is not just their money, but their dazzling skills that holds the key to solving social problems.

The problem is that the left-wing academics, who see donors as a source of funds for their pet projects, can't bear the idea of philanthropists muscling in on the funding of services that they see as the preserve of the state.

However, this is exactly what Britain's new-rich should be doing with their money. In the US, top universities are supported by massive endowment funds that allow the universities to operate free of government funding and meddling. Meanwhile, British universities are expected to abide by Stalinist rules to select students according to their parents' occupations. Previous generations of British philanthropists in the 16th and 19th centuries endowed wonderful schools and universities that operated free of state control. What a terrific legacy it would be if this gilded generation could do the same. I don't think that is what Hazel Blears meant when she called for tax breaks for philanthropy. But she should have done.

Simon Nixon is executive editor of Breakingviews.com

Simon is the chief leader writer and columnist at The Times and previous to that, he was at The Wall Street Journal for 9 years as the chief European commentator. Simon also wrote for Reuters Breakingviews as the Executive Editor earlier in his career. Simon covers personal finance topics such as property, the economy and other areas for example stockmarkets and funds.