The role of the state

Government and philanthropy share a difficult relationship. The state has a role to play in incentivising giving and has used its powers to do so. Yet philanthropy’s role as a challenger to government policy is jealously protected. How will the relationship develop under the new government?

The last government worked to overcome the barriers to giving and tap into the motivations for it through regulation of non-profits, tax incentive policies including Gift Aid, and by setting up new organisations and strategic partnerships such as Philanthropy UK to promote more effective giving. It funded research initiatives and made awards such as The Beacon Awards to encourage individuals to donate time and money. Gordon Brown demonstrated a personal commitment to philanthropic giving with the appointment of Dame Stephanie Shirley as the ambassador for philanthropy – an idea now gaining traction around the globe. Philanthropy UK documented these developments in its 2009 September newsletter article ‘Legislating for Philanthropy’.

At the time of writing, the new coalition government had yet to reveal the detail of how it intends to promote philanthropy, and indeed how much money will be available to do so, but it has already acknowledged that philanthropists will have a key role to play in its ‘Big Society’ concept.
 
Philanthropy specifically gets a mention in the Coalition Agreement, with government saying it will "take a range of measures to encourage charitable giving and philanthropy". The agreement also talks of the need to promote excellence in media sports and culture "with government funding used where appropriate to encourage philanthropic and corporate investment".

New Civil Society minister Nick Hurd said before the election that he wants to create new ‘social norms’ around higher levels of giving, both of time and money. “There is much more we can do to connect local wealth generators with the opportunity to help their local community. We need to encourage more role models from different walks of life to inspire and motivate others to follow their lead,” he said.

With swingeing government cuts on the way, new culture secretary Jeremy Hunt has already called on philanthropists to support the arts. Hunt gratefully received Charles Saatchi’s recent £25m gift to the nation – ‘a living museum’ of art – on behalf of the government.

“Charles Saatchi has built up a collection of huge international importance. His decision to gift these works to the nation is an act of incredible generosity and I'd liketo thank him on behalf of the government,” adding an important footnote on the role of philanthropy in the lean times ahead, “Philanthropy is central to our vision of a thriving cultural sector and this is an outstanding example of how Britain can benefit from individual acts of social responsibility," he said.

Research also shows the wealthy are expecting to be asked to play a bigger role. A Barclays Wealth study says 49% of the wealthy believe that since governments around the world have borrowed large amounts of money, they have less capacity to give, and charities will become more reliant on wealthy individuals. Encouragingly for the future of the third sector, this attitude is more prevalent with age. Some 72% of those under 35 believe the government will become more reliant on them, the next generation of the wealthy.

“The recession will potentially increase the role of the wealthy philanthropist on a broad basis, as governments around the world become more constrained in the causes they can fund. High net worth givers will become an invaluable source of innovation and investment for charities,” the report says.

How effective tax reliefs are in encouraging giving is still an unknown. “The UK and US, where there are high giving levels, have the most generous tax regimes but there is as yet no international research comparing the precise effects of different tax reliefs on levels of giving,” says the Charities Aid Foundation (CAF).

Hurd too is unconvinced that tax relief is a trigger to more giving. He said in a December 2009 Philanthropy UK article, “I am not sure that tax is a big driver, although we have said that we will look at reforming Gift Aid to make it more efficient, and also tax breaks to stimulate social investment in the most deprived areas.”

Barack Obama in explaining his plans to cap the size of tax breaks available for the highest earners, made clear his feelings on the relation between incentives and giving.

“Now, if it's really a charitable contribution, I'm assuming that that shouldn't be the determining factor as to whether you're giving that $100 to the homeless shelter down the street,” he said.

However the World Wealth Report 2010 documents a growing trend for ‘giving while living’ and says as a result there is greater emphasis on incorporating giving strategies into donors' ongoing wealth accumulation and capital-preservation plans, which may lead to more interest in tax incentives.

In the Barclays Wealth report, 52% of those surveyed said that the most effective way for the state to increase donations would be to increase tax breaks to offset charitable giving. However, it also says many believe the state’s role should be restricted and that it should avoid intervening in philanthropic activities. Some of this is based on a lack of trust in the political process, with 59% of the wealthy agreeing that this distrust "has prompted them to give directly to charities", where they feel their money can make a bigger impact rather than indirectly through taxation.

Francie Ostrower, in her book Why the Wealthy Give, explores this point, "Distrust and scepticism toward government are integral components of [a wealthy donor's] position". She finds that wealthy people prefer to donate than pay tax because they distrust government to spend their money well, due to the "politicised nature of decision-making in government", the low calibre of people who work in government, its large size and bureaucratic structure. One of her interviewees sums up their feeling succinctly, "If I wanted to live that way [i.e. pay tax instead of make donations]. I'd move to Sweden”.

The state’s role in philanthropy remains important, but relationships between donors and the state are complex and to some degree the evidence for the impact of various pro-philanthropy initiatives is, as yet, unclear.