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RADIO 4 CURRENT AFFAIRS ANALYSIS CHANGING CHARITIES TRANSCRIPT OF A RECORDED DOCUMENTARY Presenter: Alison Wolf Producer: Chris Bowlby Editor: Nicola Meyrick BBC White City 201 Wood Lane London W12 7TS 020 8752 7279 Broadcast Date: 05.07.07 2030-2100 Repeat Date: 08.07.07 2130-2200 CD Number: PLN726/07VT1027 Duration: 27’39” Taking part in order of appearance: Stephen Bubb Chief Executive of Association of Chief Executives of Voluntary Organisations (ACEVO) Nick Seddon Author of ‘Who Cares?’ Former Research Fellow at Civitas Ed Miliband first ‘Minister for the Third Sector’ Greg Clark Conservative MP Pat Thane Professor of Contemporary History, Institute of Historical Research in the University of London Suzi Leather Chair of the Charity Commission Leslie Morphy Chief Executive of Crisis Julian Le Grand Professor of Social Policy, London School of Economics Former Senior Advisor to Tony Blair WOLF: What does the mention of ‘charities’ conjure up for most of us? Famine relief and disaster, probably: the tsunami, or heart-rending photos of AIDS orphans. Nearer home, it's as likely to be a small charity down the road – the donkey sanctuary, maybe, the Scouts, the local youth theatre group. We are not likely to think, immediately, of mainstream social services. Children’s homes and hospices, maybe. But employment services? Probation or ‘offender management’? maybe even leisure centres and the swimming pool? Hardly. And yet providing welfare services directly for the state is, increasingly, the major concern of Britains voluntary sector - or, as it is now often called, the third sector: meaning that it is neither public nor private, and apparently all the better for that. Stephen Bubb is Chief Executive of ACEVO, the Association of Chief Executives of Voluntary Organisations. BUBB: Ten, fifteen years ago, the majority of social workers worked in the public sector. Now, the majority of social workers work in the third and independent sector. We see ourselves playing an increasing role in the government’s public service reform agenda. The government and indeed the Conservative opposition see fundamental changes in the way we run public services, moving away from top down services to user led, citizen focused services, and that’s really where the third sector comes into play. WOLF: And this is big business. The voluntary sector receives well over £10 billion a year in income from the British state – considerably more than comes from individual contributions. The state is now the biggest single source of revenue for the sector. Some charities – and they are likely to be large rather than small ones– now depend on government contracts for almost all their income. Nick Seddon is an independent writer who has studied how state funding is changing charities. His book, ‘Who Cares?, was published this year by the think-tank Civitas; and for it, he interviewed charities across the whole spectrum of size and government-funded provision. SEDDON: In the first place, charity delivered things that the state didn’t. Then the welfare state came on and took those over and charities kind of filled the gaps underneath. Now charities are taking them back. This is great. This is the new, vibrant return to a full and fully living civil society. There’s one critical difference, which is who the funder is; that when previously charities delivered services or worked for their beneficiaries or whatever we’re going to call it, they were doing so with the public’s money in donations. They were doing things that people, very often local people, felt really passionately that they wanted to support. Now it’s taxpayers’ money. I think that if you were to wind the clock back a hundred years or bring somebody back from the past to now, they wouldn’t recognise a great deal of charity as being charity. WOLF: Why has this happened? Because charities have become the darling of every major political party – praised, feted, and invited to get involved in ever more public service provision. Charities in the UK have altered faster, and more comprehensively, in recent years than anywhere else in the developed world. One result is that the ‘voluntary’ sector now has well over 600,000 paid employees; and their number has grown, under Labour, twice as fast as for public employees, and at well over twice the private sector rate. Last year the voluntary sector was given its very own government department, situated close to the power centre of Downing Street. And Ed Miliband, a former special adviser to our new Prime Minister, was appointed last year as the first ever Minister for the Third Sector. MILIBAND: I think the third sector plays an incredibly important role not just in helping to deliver services but in building community at the local level, but also in campaigning and advocacy. If you take the issues we face in our society from public health to education to drug rehabilitation, what’s the real premium? The premium is on engaging the user, on engaging the individual who needs to be helped. And what I see on the ground is that often public sector organisations but also third sector organisations, charities, have a particular talent for engaging those individuals. WOLF: It isn’t just Labour that is keen to welcome voluntary organisations into the heart of government and of the welfare state. The Conservatives had a similar ministerial proposal in their last manifesto. Greg Clark MP is seen as one of the most innovative thinkers in the Cameron team, and has played a key role in developing Conservative policy in this area. CLARK: The people with the best record of success, we find, are people in the voluntary sector. So in tackling some of the big social problems and you know looking for opportunities to revitalise our communities, we’d like to see the third sector play a much bigger role in that. And so what our purpose is is to first of all remove the barriers that hold them back; and, secondly, to think about how we can increase their participation; and, thirdly, look at government to see how we can change the way government deals with charities to make that possible. WOLF: Just what is going on here? Politics used to be quite predictable. Labour was in favour of the public sector; the Conservatives wanted to hand more and more over to the private sector to run. Now, suddenly, we have this shared enthusiasm for a third sector that is to get bigger and bigger? The most plausible explanation is, itself, political. Public services will be at the centre of the next election campaign – and, indeed, the big challenge of the next half century. But new Labour lost faith in the ‘public service ethos’, and in the idea that public employees are automatically devoted to the general good. And as the Tories have discovered, there is major public resistance to the idea of profits being made in education or health – this is not like privatising gas, or electricity, or British Airways. So the newfound, consensual enthusiasm for a ‘third way’ of charitable provision may be born of desperation. Or to quote one well-respected figure in the sector, whose own charity provides services for carers, ‘We are the acceptable face of the private sector.’ And what happens, when the voluntary sector takes on more and more public service provision? Do we get a real improvement in quality, and a step towards the ‘better’, ‘more empowered’ communities that so many politicians are seeking? Some people in the sector think so. They really do believe that their ‘third’ way offers the best of both worlds, public and private. Stephen Bubb of ACEVO, whose members include most of the organisations winning large contracts for service delivery, is one of them. BUBB: I think what’s happening now is a rediscovery of the power and potential of the sector, which got lost. What I find from my members is the combination of the professionalism and the passion. You can’t run a charity making a loss. If you do, you go out of business. We are as chief executives, as professional staff as interested in profit as anyone else, but it’s what you do with the profit that matters. And that’s why we need to be professional. You know people who receive services - disability services, mental health services from charities focusing in that area - want good services and we want to provide them, and that’s why professionalism is important. And that’s why we want to make profits, but it’s you know the profits that we distribute back into organisations, into communities. WOLF: So where state bureaucracies become remote, charities can stay close to citizens – and, apparently, be efficient too? One can, indeed, make the argument that a not-for-profit organisation often gives better value for money, because its employees really believe in what they are doing, and so work harder than they would for a private company, as well as because there are no shareholders demanding dividends. The money all goes straight back in. But it also sounds almost too good to be true. And it probably is. Gordon Brown, in his first speech as Labour leader, asserted that, in 1997, Labour ‘won the argument for investing in and reforming public services.’ The policy then was indeed as much about spending as it was about reform. But the days of largesse are over, and we are back to much more familiar and long-standing dilemmas. Pat Thane is Professor of Contemporary British History at the Institute of Historical Research in the University of London and an expert on the development of the welfare state. THANE: The main reason why the state’s been subsidising charities - and it starts under Labour in the late 1970s - is precisely to shift as much of the cost as possible away from the state, giving voluntary organisations a substantial amount of money but then expecting them to raise the rest by voluntary means. And I don’t see any government in the foreseeable future changing that because either it means that there’s not going to be any welfare or there’ll have to be massive taxation. WOLF: The tensions between the state and the voluntary sector are clearly exposed in the negotiation of contracts for service delivery. Among themselves, charities complain about these constantly. One issue is the bureaucratic burden, which the National Audit Office agrees is often quite unrelated to the size of a contract, and so falls disproportionately on smaller charities. Another problem is local authorities' preference for very short contracts - which are great for the commissioning authority, who can pull out at short notice without penalty, not so great for the contracted organisation. And there are also problems with payments: - they come erratically, or late, and, worst of all, contracts often simply fail to cover the cost of what is being provided. The Charity Commission, the regulator of charitable activity, recently reported on the problems many charities were experiencing, with short contracts which fail to cover the full expense of delivery. Suzi Leather is the Commission's chair. LEATHER: The law does permit charities to deliver public services and indeed the law does permit charities to subsidise public service delivery, but only - and this is crucial - only where the trustees of that charity have deemed it to be in the interests of beneficiaries. Our survey showed that only 12% of charities that are delivering public services are getting full cost recovery for those services all of the time, and more than two thirds of the funding agreements are for a year or less. Now these are really big issues for charities because this is not sustainable funding, and the implication of this is that many charities are having to dig into their own reserves in order to continue to fund public services. If there was a greater public understanding about the extent to which charities have been subsidising public services, many people would not have the current levels of confidence that they do have in the sector. WOLF: It’s an interesting question how many of us give to charities with the idea that we are helping to pay for mainstream welfare - and the accompanying bureaucracy; or would give, if we knew this to be the case. But charities may all too easily find themselves in situations where, once involved with government, they have to accept whatever contract and price they are offered. Anyone who – like me – is a trustee of a smallish charity knows what a hand-to-mouth existence this is. Individual donations are uncertain. There are grant-giving charitable trusts which are everyone's favourite, generous and non-intrusive. But their resources are far from infinite, and their funding criteria often very strict. So in practice you tend to grab any money that is on offer, with a huge sigh of relief – which is not necessarily a good idea. Government grants start to be the major support for core staff and activities. If they dry up, charities can die, even when they are known for their effectiveness. Yet the pressure on local government budgets, especially for care, is also acute. Even the government accepts there is a problem. Ed Miliband. MILIBAND: Now it’s very important government provides a fair price for those public services and that these things aren’t seen as public services on the cheap. WOLF: Isn’t there a risk that the people commissioning public services will tend to try and get it on the cheap from charities? MILIBAND: Commissioners are always going to seek the best price they can find, but. as people in the sector themselves say, it is very important that charities, third sector organisations feel the ability to walk away and say well, look, we’re not willing to provide the contract at that price. WOLF: But of course, mostly they don’t. After all, what are you meant to do, especially if you are not one of the big charities? The Lottery is drying up as a source of funds; the Olympics are looming. Meanwhile, individual giving is pretty much static: the country may have got richer but there has been no parallel growth in donations. And the smaller you are, the harder it is to fund- raise effectively. So you bid for a government contract – and then probably find that it has gone to one of the very big organisations anyway. Because one major result of charities’ move into public service provision has been the polarisation of the sector. Nick Seddon describes the process. SEDDON: What we are witnessing at the moment is a de facto dividing up of the sector, a kind of fissuring of the sector; and we have to think about it in terms of the fact that 2% of charities are taking 80% of the money going into the sector. The large charities are taking an increasing proportion of public money and also of the public’s money in donations, and the smaller charities are finding it harder and harder to survive because they’re not very good at negotiating contracts and also the government’s not so interested in doing that. And because the big charities also have an enormous amount of brand presence, big charities are managing much better to marshal public support and public interest and, therefore, public money. I see it as absolutely inevitable that it will carry on becoming the case that medium-sized charities will simply begin to collapse. When we talk about the sector as a single entity, we find ourselves regarding it as having something of an identity crisis. WOLF: There is surely more at stake here than simply the balance sheet? Charities may be renowned for doing things cheaply and economically - for tapping volunteer help, or paying low wages. But that is not why they exist: they were not created to be some sort of bargain basement for services. Isn't there a risk that government funding will corrode exactly those qualities which make them different, including something which has always been at the heart of British charities: - independence from the state, and the freedom to criticise government policy? Some of Britain’s best known charities are, for this reason, constantly occupied with the question of how close to government they can and should move. Leslie Morphy is chief executive of Crisis, a charity dedicated to the welfare of single homeless people, and with a turnover of over £7 million a year. MORPHY: Crisis very much started as a campaigning organisation, which was responding to the way that there were perhaps people who were the most vulnerable in our society in many ways, who were undoubtedly falling right the way through the gaps of the welfare state. WOLF: Your charity is one which currently gets very little direct money from the state and relies very much on individual donations, which is I think how most people think of charities. Was that a conscious decision? MORPHY: It’s an interesting question, the extent to which we consciously raised money not from the state. There is certainly something both in the history and the culture of Crisis which I think would worry if a very significant percentage of our income started coming from the statutory sector. WOLF: Do you actually have a danger line in terms of we shouldn‘t go above this level? MORPHY: I think it‘s fair to say that we don‘t have a danger line that would be fixed, but I think that we would start worrying if we crept anywhere near the 50% mark. Now actually we’re so far away from that, frankly, that it hasn‘t become an issue. But I‘m quite sure that my trustees would start worrying at that point. They would start seeing it, I think, as a different kind of organisation and not the kind of organisation that they wish to support. WOLF: People in the sector are extremely unwilling to talk, on the record, about their dealings with government, let alone the compromises they may make. One highly informed critic of government contracts and contract management told me that ‘my chief executive thinks everything will cave in if we make a lot of noise. If you need quotes, we will have to work very hard on what quotes we could give you.’ You have to sympathise. Why risk trouble when you are trying, week by week, to keep your services going, your clients helped, and your staff employed? Nick Seddon certainly believes that charities’ new role has had a major effect on their behaviour. SEDDON: I think that in many cases charities are beginning to sound like government - in the way that they talk, in the way that they present manifestoes, in the way that they make their promises and what they‘re going to do. There’s a lot of self-censorship by charities, which doesn‘t really mean that they‘re being forced not to say certain things by the government funders, but many of them are starting to sound the same WOLF: Some people in the sector disagree. They see greater closeness to the state as an advantage, not a threat. Stephen Bubb, of the voluntary sector's Association of Chief Executives, thinks the worries are grossly exaggerated and that there is little danger of charities becoming parastatal organizations. BUBB: You need to reflect on the fact we have you know a democratically elected government and local authorities. We’re discussing with them, we’re involved with them in the development of policy. That is how it should be. The question is does that affect our ability to speak out, speak truth to power? Well the evidence so far is that we can. One good example: at Barnardo’s where I think just under 60% of their income comes through contracts for some 110,000 children, the Head of Barnardo’s has spoken out on a range of issues very strongly and taken a very strong line against government policy - for example on the treatment of migrant children. WOLF: Suppose you’re not Barnardo’s, suppose you’re not a national name with all the safety that gives you. Do you think smaller charities can really tell it like it is? BUBB: Well they do. I am upbeat on independence and the reason is that twenty years ago governments treated the sector with a lack of interest and almost contempt. Now you could not develop a policy in any key area without consulting with, asking our charities what their views are. Segue MORPHY: It's quite easy to find small organisations who have not got a variety of funding sources, who can find that they actually need to be very careful what they say because they’re worried that actually they won’t get the next grant the next year, the next contract the next year. And not only does that have an impact, a significant impact obviously on their ability to deliver whatever service they’re delivering; it has a significant ability on them just to keep going with the two or three staff that they have. WOLF: Leslie Morphy of Crisis. Of course it is absolutely right that if a charity is receiving taxpayers’ money it should be accountable for how that is spent. There is no reason why charities providing a particular welfare service should expect different, more lenient conditions than the public, or private sector, providers down the road who are doing the same. But is that sort of mainstream provision really what we want from the voluntary sector – is it what they are good at? Leslie Morphy has her doubts. MORPHY: It may still be that actually it is however as charities and having volunteers working for them, they still have a different kind of feel than if they are actually a state organisation, if you like. And I think there’s quite a lot of arguments to back up a view that voluntary organisations are better able to get to the group of people who perhaps are slightly under the radar very often, the more disadvantaged communities. Also, I think, there’s quite a lot of evidence that government services very often, public sector services often are very good at dealing with the majority and often not so good at dealing with the minority - so I think what big charities with large government contracts have to be really, really careful about is that in delivering to that generality if you like of a public service, they don’t forget and they don’t find it more difficult to deal with the most disadvantaged groups. WOLF: The conflict may indeed be inherent. The voluntary sector is renowned for being local, client- focused, and non-standardised. Governmental bodies have to deliver services to large numbers of people, in line with standards, targets and budgets, all of which are set centrally, in Whitehall. The Conservative party has put the voluntary sector at the centre of its public services policy, and Greg Clark worries that the tight nature of current government contracts may kill innovation CLARK: If you are expecting charities to dance to the government’s tune and using contracts to dictate exactly how they’ll perform - you know down to the number of people that they’re going to employ, how much they’re going to pay those people, even down to what their pension arrangements should be - then there’s a real danger that you can stifle and suffocate the ethos of those charities so that they’ll lose the very entrepreneurialism, you might say, that makes them good in the first place. I think there is a danger that the government can kill the thing it loves. WOLF: But how can one avoid this, if charities continue down the path of accepting – and being begged to accept – contracts for mainstream provision? If the essence of the voluntary sector is its distance from government, then perhaps the whole idea of greater third sector involvement is misconceived. We also simply don't know yet whether voluntary organisations are delivering the quality of service which they and their supporters claim. Julian le Grand, professor of social policy at the London School of Economics, was a senior adviser to Tony Blair, and heavily involved in developing Labour's health policy. He questions many of the assumptions made by advocates of ‘third sector’ service delivery. LE GRAND: There is some case for saying that charities will be more efficient than say private sector organisations. I mean one might be that charities actually sort of hold onto their profits. Any surplus they make, then they redistribute it back. I don‘t think that‘s a very powerful argument. The rate of profit is usually between, oh I don‘t know, 6%, 10%. It‘s not going to make an enormous difference to the amount of monies involved. And I have to say I think there are probably other reasons why one might expect charities to be rather less efficient. Usually the motivation of people who want to do good, it’s sufficient that they want to do good. It’s not necessarily that they have to use resources in the most efficient way in order to do good. So the pressures for efficiency in charities, particularly if the charities are not operating under competitive pressure of any kind, pressures for efficiency are rather less than they are on comparable private sector organisations. WOLF: You were in Downing Street at a time when there was a growing interest in using charities to provide services. Was the main argument for moving towards charities an efficiency one - the idea that they would actually be cheaper and more efficient - or was it a belief that individuals would trust them more? LE GRAND: I have to say that in the area I was working in, in health, we were actually more interested in introducing the private sector to provide services rather than the charitable sector. And I think there were good reasons for that. One of them was because of this worry that the charitable sector has other agendas. It isn’t necessarily concerned with the same agenda as the government or indeed the users. It’s got its own things it wants to do. And the second was that basically the charitable sector in many ways was in some sense less reliable. I mean with the private sector, you know where you are. Provided the price is right, the private sector will deliver the service. WOLF: There is, in fact, surprisingly little good direct evidence about the voluntary sector’s efficiency. If you compare American for-profit and not-for-profit hospitals, there are no obvious differences – but hospitals are big and bureaucratic, whatever their ownership. Regulators’ reports on care homes in the UK suggest that voluntary sector homes are, on average, the best. But a research report from the National Consumer Council, published in June this year, shows that, when it comes to home-based care for older people, it was those using private sector providers who were the most satisfied. Which underlines the fact that charities do not have a monopoly on people who are kind and nice, as Julian le Grand points out. LE GRAND: I think there is a risk that trusting the people who work in charities always to behave in as altruistic a fashion as possible and never to allow considerations of self-interest to enter, I think there is a significant risk that that belief will be mistaken. I mean we’re all self-interested to an extent. We’re all also capable of taking apparently self-interested actions and giving them an altruistic gloss. And I suspect that people who work in charities are also subject to those sort of pressures. I mean it’s not saying they’re in some sense intrinsically evil or intrinsically wrong; it’s just that it is terribly difficult to be absolutely not self-interested, absolutely public spirited and not let considerations of self-interest at some point enter into the way we organise our lives and our work. WOLF: Whether you are a critic or a fan, more ‘third sector’ provision is certainly what everyone expects. Leslie Morphy, from the homelessness charity Crisis MORPHY: I think the voluntary sector will take on quite big chunks of the public sector over the next period. Provided charities can actually really adapt to a public sector context, if you like, by actually really being able to deliver to individuals in a personalised way, I think we shouldn’t be too worried. What we have to worry about is whether the contracts make it more difficult for them to do that. WOLF: Is there a danger that too much will be expected of charities; that we can have the public sector ethos and the private sector efficiency and something special to boot? MORPHY: I think that’s a very good question and I think that it may be that this is looked at you know it’s the new holy grail which actually won’t ever be found. WOLF: Indeed not. But with public services as important, and expensive, as they are, politicians will no doubt continue riding out in quest of that elusive grail. The danger, it seems, is that they may slay charities as well as dragons.