Features

Why are charities not spending the money they’ve raised?

Rather than spend their donors’ money on charitable causes, a huge number of charities are hoarding cash and investing it. They should be spending it on those they have pledged to help, says Merryn Somerset Webb.

Charity collecting tin/box © Getty Images

One of the (many) odd things about the charitable sector is the way each charity seems to believe itself to be a permanent institution.

Ask an investment manager running charity money what his brief is and it is almost always to create income for charitable spending while preserving capital such that the same income can be produced in perpetuity. Our investment horizon, say charity trustees grandly, is forever. But should it really be?

Would it not be better if the explicit aim of (and expectation behind) most charities was not to exist forever but to use all their resources to have a bash at solving a problem and then shut down (preferably without leaving a massive pension liability behind it).

Look, for example, at HIV charities. Back in the 1990s it seemed like this horrible illness was a forever problem (I was of the generation informed that one in four of us would die of Aids) and many charities were set up with that in mind. But HIV is now something that patients can live with and, better still, a cure appears to be in sight. What happens, then, if there is a cure? Do those charities devoted to either finding one or supporting those with the disease shut up shop? They should.

With that in mind I'm encouraged by the most recent report from the National Aids Trust which holds only enough in reserves to operate for a maximum of six months and to wind down. But I'd also bet a good chunk of gift aid on an awful lot of them finding a new problem to focus on and just carrying on.

If the charitable sector is good at anything, it is organisational mission creep. One of the side effects of this is a tendency to hoard cash after all if you intend to be around forever, you need to build reserves.

This brings us to this week's upset, military charities. They do, I'm afraid, probably fit into the "likely to be needed forever category". But that doesn't mean that they should be prioritising the future over the present as a look at their finances suggests they are.

An analysis by The Times reported this week suggests that the ten largest military charities are sitting on a total of £275m in cash. You may first wonder how many military charities there are. The answer is 187. You may then wonder how on earth, with that many do-gooders all working in the same area, they ensure they avoid wasting resources on duplication. The answer to that is that they don't. Which is why MP's are calling for government action on the matter.

But most of all, you may be wondering how they excuse holding all those reserves when, as the Times points out, "so many veterans are struggling and need help."

The military charities are not the only ones getting this wrong. Comic Relief is an even worse example. Its managers tell us they are desperate for more cash to help out with global poverty. Yet they are sitting on tens of millions of unspent cash. Most charities, and these are no exception, are largely taxpayer funded via either direct grants or Gift Aid. Taxpayers are entitled, I think, to feel that their contributions to the UK's 167,000 charities are all spent when and where there is need.

Recommended

What’s in Biden’s global corporation tax proposals?
Global Economy

What’s in Biden’s global corporation tax proposals?

US president Joe Biden’s administration recently proposed a universal model for taxing global companies. Saloni Sardana looks at what's involved.
13 Apr 2021
House prices: from boom to even bigger boom
House prices

House prices: from boom to even bigger boom

UK house prices have risen to new to record highs, says Nicole Garcia Merida. Demand continues to outpace supply, but continued low interest rates, th…
9 Apr 2021
International tax competition is under threat – which stocks are most vulnerable?
Global Economy

International tax competition is under threat – which stocks are most vulnerable?

The idea of a global corporate tax regime is taking off, with the US proposing a sales tax on multinationals. John Stepek looks at which companies cou…
8 Apr 2021
The end-of-tax-year to-do list for small businesses
Small business

The end-of-tax-year to-do list for small businesses

If you run a business, get on top of your paperwork before 2020-2021 draws to a close.
1 Apr 2021

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
Four investment trusts for income investors to buy now
Investment trusts

Four investment trusts for income investors to buy now

Some high-yielding listed lending funds have come through the crisis with flying colours. David Stevenson picks four of the best.
12 Apr 2021
Central banks are rushing to build digital currencies. What are they, and what do they mean for you?
Bitcoin

Central banks are rushing to build digital currencies. What are they, and what do they mean for you?

As bitcoin continues to soar in value, many of the world’s central banks are looking to emulate it by issuing their own digital currencies. But centra…
8 Apr 2021