We need to distinguish between good and bad charities

Not all charities are equally good. But taxpayers are forced to give as much to the bad ones as the good ones. That needs to change.

You will know by now that I don't entirely approve of tax relief on charitable giving. But even if I did, I would still think that our current system is lousy: it gives us no way of distinguishing between good charities, useless charities and bad charities.

I've referred before to the book out from philanthropy adviser Caroline Fiennes (It Ain't What You Give, It's the Way That You Give It) but it is worth returning to with this in mind. The idea of the book is to show donors how best to give their money, but read between the lines of various bits of it and you will see pretty clearly that not all charities should be considered equal in the eyes of taxpayers.

The book opens with a story of three charities in India which have the same aim to get small children to turn up to school every day. One does this by handing out cash to parents when their kids turn up; the second does it by distributing school uniforms; the third does it by de-worming the kids (having worms is a nasty business it can make you lethargic and cause you real pain).

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All the methods work. That's good. But one works much better than the others: the first spends $1,000 a year to keep a child in school; the second spends $100; the third spends $40 at worst, and $4 at best. Even at its most inefficient, the de-worming charity is 25 times as efficient as the "pay per visit" charity. Or to put it another way, every time we put $1,000 into the first charity over the third, "fully 24 children needlessly miss out". Yet regardless of which one you donate to, the subsidy chucked in by the taxpayer will be the same.

The point here is not that any of the three charities mentioned above are anything but well-meaning. It is just that being registered with the regulator for any given region doesn't tell us whether a charity is good or not. It only tells us that as far as the commission in question has the resources to check, the charity is not operating fraudulently, and appears to be working within its mission. The regulator does not monitor charities' effectiveness any more than Companies' House comments on the quality of a company's products or its financial performance.

So does that mean that a charity can be registered, be subsidised by the taxpayer and be utterly rubbish? Yes it does. Fiennes quotes the assistant director of the Coalition for Evidence-Based Policy saying that: "1) the vast majority of social programmes and services have not yet been rigorously evaluated; and 2) of those that have been rigorously evaluated, most (perhaps 75% or more), including those backed by expert opinion and less-rigorous studies, turn out to produce small or no effects, and, in some cases negative effects."

So what does this mean? Fiennes' book is about how to find charities that will work effectively with your money the ones that can make £50 do as much for the world as another charity could with £500. But we could surely use that process to make the way the taxpayer is forced to give work better as well. If we have to offer tax relief for charities, let's not hand out money to any ineffective do-gooder with a gift for form-filling. Let's find a way to measure and finance what really works.

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.