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

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).

Try 6 free issues of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial

Sign up for MoneyWeek’s free twice-daily newsletter.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Sign up

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.