Posted on 23rd March 2011
The Directory of Social Change (DSC) is the latest body to criticise the proposed requirement that charitable trusts should pay out a minimum of 5% of the value of their assets each year, as put forward in the Government’s Giving Green Paper. DSC calls the proposal “unworkable and undesirable”.
DSC’s Head of Policy Jay Kennedy says: “Hundreds if not thousands of trusts and foundations engage in both operational and grant-making activity to meet their charitable objectives. A 5% payout rule based on the asset value could mean trusts might have to dispose of assets that are serving charitable objectives in other ways, just to meet the requirement.”
He cites an example of a trust set up to help older or disabled people might use its property to house and support them, and also run a small grants programme worth far less than 5% of the total value of the trust’s assets. “A 5% payout rule could conceivably lead to the trust having to sell off the property where the older and disabled people live, to fund an increased grants budget. That would be completely and utterly bonkers.
“There are plenty of other problems with this idea,” he continues. “The fact that the Charity Commission's budget has been so severely cut by the Government means it’s hard to see how such a rule could even be properly implemented or regulated.”
In its detailed response to the Green Paper, DSC outlines in greater depth why it believes the 5% payout idea is unworkable, as well as the ambition by Government to “unlock a slice of the assets of trusts and foundations to build the social investment market”.
It points out that the UK’s trusts and foundations are “the embodiment of a sustainable funding system”.
“By investing capital wisely and prudently, returns are used to provide charitable grants. Financial risk and the burden of accumulating and managing capital is not directly loaded on to the beneficiary, it is on the grant-making charity. The system already supports charities by investing in the private marketplace – connecting business and charitable sectors – and this has sustained it in various forms for hundreds of years,” says the response.
DSC makes 10 recommendations to improve giving; five for the Government – including one to resist calls for a 5% payout and another to work with the voluntary sector and other institutions like the media to maximise individual giving around major public events – and five for the sector.
Meanwhile the Association of Charitable Foundations (ACF) has also prepared a detailed response to the Giving Green Paper based on comments and feedback from over 100 members, and outlining why the 5% payout proposal is unlikely to generate any additional income for charities as suggested, and could produce the opposite effect while also proving a very significant intrusion upon the independence and responsibilities of charity trustees.
Click here to read the DSC's full response to the Giving Green Paper.
