Charitable giving in the UK

As the charitable sector grows and as individual charities try to do more, they are increasingly turning to private funding - trusts and foundations, companies and individuals - for new sources of support. Many charities are beginning to target individual donors more strategically, with some dedicating staff to raise funds from 'major donors'. Moreover, while overall charitable giving appears to have levelled off in recent years, a new type of donor is emerging - one who is both wealthy and socially conscious, and keen to explore new ways of charitable giving.

Overall giving

Charitable donations from the general population¹ totalled an estimated £7.1 billion in 2003, down slightly from an estimated £7.3 billion in 2002. The most popular causes, defined by total voluntary income, are international aid charities and cancer; while the most popular individual charities are Cancer Research UK, The National Trust, Oxfam and Royal National Lifeboat Institution (RNLI).

Charities are reliant on a small proportion of donors for the majority of their income from individuals. While two-thirds of the population donate up to £5 in a typical month - including over 40% who give nothing at all - less than 5% of the population, represented largely by the mass affluent, give over £50 a month, accounting for over half of the total amount donated.

Giving by the wealthy

Wealthy donors generally favour different causes than poorer donors. For instance, the wealthy give largely to arts and culture and social welfare organisations, while poorer donors tend to prefer international aid and animal welfare charities. Moreover, the wealthy are far less likely than the general population to respond to international aid appeals: the British Red Cross defines a 'major donor' as one who gives over £500 a year.

Furthermore, research by Lloyds TSB Private Banking (Wealth Watch) suggests that the wealthy are twice as likely to give their time to charity as is the case with the general population. This evidence is further supported by a CAF survey of business leaders², which showed that two-thirds of the senior executives surveyed gave time to charity. One-third of these executives felt that their financial donations were "important" to charities, while half of company chairs noted the same.

Recent research by Philanthropy UK, reported in Why Rich People Give³ - the first major British study into the wealthy and their giving patterns, experiences and expectations - revealed five key motivations for giving:

• Belief in the cause: Donors want to change or enhance society's systems in line with a personal interest or belief, or they are driven by a sense of national, regional or local pride.
• Being a catalyst for change: Donors want to have an impact, to make a difference.
• Self-actualisation: Individuals wish to 'define their place in history', believing that the highest recognition of posterity lies in what they can do for the sake of others.
• Duty and responsibility: Citing the obligations of wealth, donors desire to give something back to society.
• Relationships: Donors enjoy the relationships they establish with the charity, its beneficiaries and other donors.

Giving trends

Based on recent trends in both demographics and philanthropy, the UK appears to be on the brink of a sea change in charitable giving - one that will result in sustained, higher levels of giving by a greater number of individuals.

First, we are in the midst of a significant global, inter-generational transfer of wealth. From 1998 until 2052, 'baby boomers' and the Second World War generation will pass on their estates to their heirs and to charity. In the US alone, this wealth transfer is conservatively estimated to be worth $41 trillion, with $6 trillion being bequeathed to charity⁴. Moreover, the wealthier the individual, the more generous he or she is likely to be: estates of $20 million or more typically leave an average 49% of their value to charity and only 21% to heirs⁵. These patterns are likely to be similar in the UK. Furthermore, the proportion going to charity is more likely to increase than decrease, as fewer baby boomer couples are having children: it is predicted that 21% of women born during the 1960s will remain childless, compared with 14% of women born in 1931⁶.

Meanwhile, a new type of donor is emerging - young, self-made and socially conscious - who is giving rise to new ways of giving. Of those interviewed for Why Rich People Give, 70% were self-made, half of whom were entrepreneurs and half were professionals, largely in finance.

These statistics are supported by the Sunday Times Rich List, whose editor, Philip Beresford, has observed that, in 1989, 75% of the list had inherited their wealth and 25% were self-made. By 2005, this ratio had been completely reversed. Beresford also notes that, with this shift "has come much more willingness to talk about wealth, not to be ashamed of it, to be proud of what they have achieved"⁷. Citing the increasing levels of liquid wealth resulting from company sales, he predicts that "within the next five years the number [of entrepreneurs] who have sold their business for £50 million or more will make up around 30% of the Rich List, compared to 15% today".

These new philanthropists are using their wealth and business experience to create private foundations, start up or support emerging models in philanthropy, test innovative approaches to social issues, and volunteer their time and expertise. They are engaged and pioneering, have ambitious goals, seek impact and demand accountability. Moreover, as traditional foundations and government have begun to adopt aspects of these new approaches, the key distinction in philanthropy is no longer the conventional structure of giving (ie, individual, family, foundation, etc), but rather the aspiration of the giver.

Examples of emerging approaches in philanthropy include the following:

• New types of financing for charities. Social investors are utilising risk-based capital and quasi-equity to finance charities and social enterprises, filling a gap in the funding market. Organisations offering loans to charities include Venturesome and Charity Bank, both incubated by the Charities Aid Foundation, Esmée Fairbairn Foundation and the Adventure Capital Fund, a government-funded initiative.

• More strategic and more engaged donors. Many new philanthropists - especially business entrepreneurs and City professionals - want to do more than write a cheque; they also want to use their experience and expertise to support the charity more closely. They are willing to invest a significant amount of capital - including funding core costs - and take significant risks to test innovative ideas. For example, Sir Peter Lampl and Dame Stephanie Shirley are committed to effecting large-scale change in their respective areas of interest. Another example is Impetus Trust, the UK's first general venture philanthropy organisation. Two recent government initiatives - the Adventure Capital Fund and Futurebuilders - also offer a mix of financial and non-financial support.

• Targeting gaps in current services. New donors are challenging traditional prejudices that government should provide for all social care, education and health services, and that any private funding in these areas would "let government off the hook". Recognising that government resources are finite, they are defining new roles for private donations - which are more able than government to accept risk - within public services. New Philanthropy Capital, a charity that advises donors and funders on how to give more effectively, has highlighted various ways private donations can augment public service delivery. These include testing and promoting new, innovative approaches (eg, palliative care centres for cancer patients), serving people who do not receive government funding (eg, counselling support for families of disabled children), and subsidising a higher level of care than the government provides (eg, in-home care for the terminally ill).

• The rise of the social investor. Social investors seek to harness the power of market forces to achieve sustainable economic growth in disadvantaged communities. By seeking a financial return, in addition to a social return, they are able to attract significant private investment that otherwise would not be available. Examples of new models include community development finance institutions (CDFI) and community development venture capital (CDVC). Community Investment Tax Relief (CITR), introduced by the government in 2002, has further spurred community investment, as shown by the success of CITR accounts offered by Charity Bank.

• Focus on impact, accountability and transparency. As they become more strategic in their giving, donors increasingly want to see the impact of their support. This goes beyond outputs, such as the number of people served, to address the longer-term outcomes and impacts on beneficiaries, such as improved health or self-esteem. New ways to assess these impacts are being developed. For example, in the 1990s, American venture philanthropy fund REDF pioneered a new measurement tool - social return on investment (SROI) - which measures social returns (such as increased income from new employment) as well as financial returns. In the UK, the new economics foundation ⁸ has developed a portfolio of tools to help understand and measure social returns. Furthermore, donors, drawing on their business experience, are demanding increased accountability and transparency from charities. They want to be confident that their money is being used both effectively and efficiently.

• Improved information flows. Publicly available information on charities generally has been wanting. However, this is beginning to change, as several new initiatives aim to improve the quantity and quality of information flows in the sector. These include online resources, such as the Charity Commission's Register of Charities and GuideStar UK, due to be launched in 2005, as well as research into different areas of charitable activity and tailored advisory services for donors from NPC.

1 The statistics on charitable giving by the general population, except where otherwise noted, are from the Charities Aid Foundation (CAF), www.cafonline.org.

2 C Walker and C Pharoah. Making time for charity: A survey of top UK business leaders' involvement with voluntary organizations, CAF, Kent (2000)

3 T Lloyd (2004) Why Rich People Give, Philanthropy UK, Association of Charitable Foundations

4 J Havens and P Schervish (1999) Millionaires and the Millennium: New Estimates of the Forthcoming Wealth Transfer and the Prospects for a Golden Age of Philanthropy, Boston College Social Welfare Research Institute, Boston

5 "Doing well and doing good", The Economist, July 29 2004, London.

6 The SAGE Research Group, London School of Economics, citing M Evandrou and J Falkingham.

7 Conference speech, 14 April 2005

8 The Editor is a nef Associate.