Do we really need so many charities?

Charities do vital work in Britain. But having too many of them is pointless and diverts money away from core services.

I've written several times on the madness of the system regulating charities in the UK.

We have 160,000 odd of them.Some are good (in that their net effect is positive for the general population). Some are bad (being frauds or ego trips). Most are middling. But they aren't particularly well watched (the Charity Commission can't possibly watch them all at once) and they endlessly duplicate each other's aims.

They also come with huge opportunity cost: charities have tax-free status, but they can also reclaim income tax paid on donations given to them (via Gift Aid). That tax is reclaimed directly from the Treasury, and then can't be used for anything else (schools, hospitals and the like).

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Claim £10 of Gift Aid for a charity and that's £10 that isn't going to be spent on getting a new MRI machine for someone's local hospital, on paying public sector salaries and pensions, on building HS2 or on cutting your child's primary school class size below 30 kids.

That would be fine if we could be sure that the charities spent the money at least as well as the government (not, let's face it, a particularly tough target). But there is precious little evidence that they do.

All this was thrown into sharp relief by a letter to The Times this week. Pat and Sue Berry from Lewes, East Sussex want to leave some of their money to charity. But, they say, there are so many cancer charities, so many wildlife and animal charities, so many local hospitals and other, no doubt, worthy groups that it is hard to differentiate between them.

It is confusing, of course, but, say the Berrys quite rightly, it must surely also lead to "huge inefficiencies and overhead costs". For this the Berrys blame funding cuts. Is it these, they ask, that have weakened the Charity Commission, and allowed "the number of overlapping charities with identical or near identical objectives to grow?"

They are blaming the wrong thing. The truth is that our charitable system is a chaotic mess. It allows too many people to do too many overlapping things (there is no sense in the registration process that duplication is a bad thing)*, and it allows these things to be done via a huge transfer of cash from the general taxpayer to special interest groups.

If I had my way (sometimes it happens), the number of charities able to live off Gift Aid would be cut from 160,000 to more like 100 with a strict 'one in, one out' policy alongside a no-overlap policy.

Each of those 100 would be constantly evaluated to be sure that their work was better done outside the public sector than inside the public sector (ie, that the opportunity cost of their existence was lower than their cost to the taxpayer).

And everyone else with a yen to finance or to be seen to finance good causes? They could continue to raise money as and when they like, just not at the expense of the tax revenues that are supposed to pay for our core services.

This would all be cheaper, fairer, less chaotic and it would also make it much easier for the likes of the Berrys to feel secure in being generous with their wills.

* I count eight donkey charities and six red squirrel charities in the UK. There are another 300 devoted to the welfare of domestic pets and another 1,000 plus to animal rescue centres. You get the picture.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.