The Fizz! Blog

A u-turn I forgot about

One of the consequences of reducing the basic rate of income tax to 20% (from 22%) from 6 April was a loss of income to charities.  Before, in order for a charity to get £1 in its coffers, you gave them 78p and the government topped it up with another 22p - in other words the government gave it 28% on top of your donation.  After, in order for a charity to a charity to get £1 in its coffers, you would give them 80p and the government would top it up with another 20p - in other words, the government would just give it 25% on top of your donation.

In practice, of course, we weren't all going to suddently start increasing our charitable donations from 78p to 80p (or whatever).  We'll carry on paying £x a month or a year, resulting in a loss of income to charities.

There was a fair amount of negative publicity about this (presumably unintended) consequence of the decrease in basic rate tax.  As a result, in the budget the Chancellor announced that the government would carry on topping charities' coffers up at 28% for the next three years, to soften the impact.

Of course, they waited until three weeks before the change was due to come in before announcing this.  I was reminded of this today when looking at a leaflet from the National Trust that assures me that, if I tick the Gift Aid box, each £1 I donate to them will be worth £1.25.  It won't now - it'll be worth £1.28.  But the National Trust, being responsible and thinking ahead, have now presumably got millions of leaflets that are factually inaccurate to get rid of.

More significantly, no doubt some charities have had the foresight to ask their donors to up their contributions to make up for the reduction in the tax break.  Now that the tax break has been temporarily restored, are they to contact all those donors again to ask if they'd like to reduce their contributions to their previous level?

Once again, this is what happens if you make up taxation policy as you go along.

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How do you know if a charity is doing a good job?

How do you know if a charity is doing a good job?  As a) someone who acts for charities and b) a trustee of a charity myself, this is something I think about on a regular basis.  You don't generally expect to find articles relevant to the subject in the Food & Drink section of The Times, but here's one:

Review of Jamie Oliver's charity, Fifteen, finds training was as raw as recruits

A non-profit organisation lacks the fundamental indicator of success - profit.  If you're running a shop, a factory, a consultancy firm or any other conventional business, profit (or lack of) provides you with tangible proof that you're doing a good job.  Maybe you could do a better job, and maybe the success of some parts of your business is masking the lack of success of others, but fundamentally profit tells you that the open market considers the output of your businesses to be more valuable than the costs of the inputs.  The market provides a clear signal to the business owner as to whether or not they're wasting their time.

If that signal is taken away, how can you tell if things are going well?  It's easy within a charity to lose sight of the big picture.  Without an external trigger - a funding crisis perhaps - there's a risk that you'll just carry on doing things the way you've always done them, and miss opportunities to grow or change and better serve the interests of your donors and other stakeholders.  As long as you spend a donor's money, and secure a similar donation for next year, keeping everyone in a job, there's a chance that you'll just keep spending money in the same way - even if there are more efficient ways of getting the job done.

Fifteen looks at first glance as if it should be able to just take restaurant profits as a signal of success, but what if an annual loss of, say, £100,000 is considered a fair price to pay for the opportunities afforded to disadvantaged youngsters, and donors can be found to cover the shortfall?  Is that a good way of providing the opportunities?  Could the £100,000 be better spent to provide more (or better) life chances to the kids?  The tills don't give you that information.

Fifteen's answer has been to commission an external report into the organisation.  Of course, they are in the happy position of having donors queueing up to pay the £50,000 cost of the report on their behalf in return for the chance to bask in the reflected glory of Jamie.  Other charities aren't so lucky.  On the other hand, a less costly report might suffice - the director of Fifteen interviewed here reckons that £10,000 would do the job for a typical charity.

Regardless of the fact that they didn't have to pay for the report, hats off to Fifteen for its openness in making the results public.

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