Charity shops: a bad deal for charities, a worse deal for taxpayers

I’ve written several times about the problems with the way in which the taxpayer finances the charitable sector via the state (all in it costs us a minimum of £6.5bn a year in lost tax revenue). But this week brought one of the most maddening illustrations of the way all this works yet.

The True and Fair Foundation (which lobbies for more efficiency in the charitable sector and is much loathed by much of the sector) has been having a look at the finances of the charity shops that line pretty much every inch of our high streets.

There are now around 10,500. They get 80% off business rates. They pay nothing for their stock (it is mostly donated). And they pay very few of their staff (most workers are volunteers). They should be making a killing. But here’s the shocking thing: they aren’t. Despite all their advantages, a very large proportion of them bring in very little money for the charities they are supposed to support.

Overall, the shops made total (tax-free) profits of around £290m last year. But they got anything from £273m to £1.6bn worth of tax breaks alone the way. How’s that for a lousy deal for taxpayers?

The shops keep a lot of volunteers busy and engaged with communities (which is nice); they clearly help with the recycling of used goods inside our economy (also nice); and they divert some cash from consumers and from HMRC to various charities (something this is nice, sometimes it is not).

But that all comes at a cost – one that, from this report at least, looks to be rather too high.

  • A Frith

    The report does not show why the charity shops are so unprofitable. Is it high rents, or high salaries of permanent staff, or what?
    I think that if the number of charity shops on the High Street were to seriously reduce, then both rents and rates would fall, due to the increased number of empty units, and reduced economic activity. The charity shops have actually taken up a lot of the slack on the high street in this long recession.

  • matt faizey

    It’s is a fair point you make Merryn. However, if these shops were to disappear then we will have high st’s looking like virtual ghost towns. Shoppers won’t shop in an area that has h the shops boarded up. It wouldn’t be pleasant. People do not shop in visually unpleasant areas.

    Moneyweek often forgets to look at the psychological drivers in the economy. I wish there was some more focus in this area.

    Like with our arrival at NIRP. People spend when they feel wealthy, and post credit crunch crash, bust, recession they don’t feel wealthy when they borrow! They feel wealthy post credit bust when they a) have savings and b) are earning interest.

    Previous drivers pr 2007 again were psychological. Their homes were supplementing their income by £500 a week……

    Who wouldn’t borrow against that 😉

    So, with less shoppers we do no want barren high streets.

    There is more benefit to the existence of charity shops than is evident in your (economical) analysis

  • James Daly

    Something needs investigating, the report states that “The US charity, Goodwill Industries6, which runs 3,000 charity shops, manages to convert 83% of overall income into profit for charitable activities. …” and also states that “Based on the latest accounts available, the typical large charity shop chain (in the UK) makes just 17p profit per pound of revenue once allowance is made for any central costs directly allocated to these shops”. If the two statements are comparable this points to, at minimum, incompetent management but more likely to fraud; significantly at cost to the tax payer in more ways than one.