Posted on 14th January 2010
A new paper suggests that two reforms to the fiscal, legal and regulatory environment for individuals planning to give sums of £50,000 or more to charity could unlock an additional £74 bn in charitable donations.
A Step Change in Philanthropy, written by Paul Palmer, professor of voluntary sector management at Cass Business School and published by the Centre for Policy Studies, argues that with increasing pressure on both government funding and public donations, the need to find ways of making charitable donations more attractive has never been greater.
Both reforms are aimed at the reasonably well-off (defined as those with net wealth of more than £500,000). The first proposal is that individuals be able to set up ‘Remainder Trusts’ for settlements – of shares, property or cash – worth £50,000 or more, while still retaining the benefit of the income or use of the gift for the term of their life. These ‘Remainder Trusts’ would differ from Lifetime Legacies in that donors would retain control over the capital - and could reclaim it if they wished - during their lifetime; lifetime legacies require that the gift is irrevocable.
“A major concern among the wealthy is that at some point they might need their capital back,” says Palmer. “The legal framework of the trust offers security for both donors and charities, who can rely on a protected income until a set date when the return can be requested. They can also use the capital as collateral for a loan. It’s also all about building a relationship, which would hopefully lead to a legacy in the long run.”
The second idea is the creation of new ‘Personal Charitable Trusts’, based on the Canadian and US models. These would benefit from “a light touch regulation free of many of the onerous reporting burdens imposed on larger charities,” says the paper. They would also offer donors the option of anonymity.
Palmer argues that this form of trust would protect donors, while still meeting the requirements of transparency. “The transparency argument has always been aimed at fundraising charities, not private charitable trusts, and on the expenditure side, not the donor side,” he says. “Donations will come from the Trust to the charity who will fufill all the transparency and public benefit requirements. The Charity Commission would know who set up the Trust in the first place, but the public anonymity could encourage a lot more individuals to give without fear of being inundated with requests from fundraisers.”
Palmer estimates that the 820,000 Britons with a net wealth of more than £500,000 hold wealth of around £740 bn. He argues that if the proposed reforms could release 10% of that wealth, this would mean an additional £74bn for the sector. “I have taken 10% as a very prudent and conservative figure,” he concludes.
Chief executive of the Association of Charitable Foundations (ACF) David Emerson, commenting on the report, raises concerns over the difference such reforms could make to funding. He says: “New ideas that could unlock more charitable funding are always welcome. However, when predictions propose ‘an additional £74bn for the sector’ my worry is around the evidence base for some of the assertions made, which isn’t at all clear. For example, the paper doesn’t appear to recognise that the 2006 Charities Act already provides the option of anonymity for living settlors in England and Wales. Knowing what impact or not that option has had in encouraging charitable giving would seem to be just one missing piece of key supporting evidence.”
