The charity sector is suffering because it tries too hard to pretend to be what the public wants it to be, rather than explaining what is actually possible, an audience of charity experts heard yesterday.

Andrew O’Brien, head of policy and public affairs at the Charity Finance Group, told the Inside Government conference that despite the “approach of pretending to the public that the sector can be everything the public wants it to be” having worked for the sector before, “there is a real danger that we are setting the sector up to fail”.

He said the sector had responded to the fundraising crisis by promising things it could not deliver.

“We are pretending that we can achieve something that is patently impossible – perfection," he said. "Charities are membered institutions, but they are not perfect. No human institution can be, and the logic of regulation accepts this. If charities were perfect we would never need to regulate them in the first place. But instead of living with this, we are encouraging the public to think that regulation can make charities perfect, and it can’t.”

O’Brien went on to say that in terms of fundraising, “we have seen a significant shift in regulation in this space in response to public concerns”, but that there has been wrong-doing that we cannot avoid. He added: “Implicit behind this approach to regulatory change has been this idea that additional regulation can eliminate all the concerns that the public has, or us as a sector.”

He said: “We have to be realistic, we cannot legislate against poor-practice. And there will always be problems. What do we say to the public when this poor practice is put on the front pages of the paper again? Do we confront the public with the truth, that charities aren’t perfect, that there will always be the need to correct bad behaviour, there will always be poor practice.

“The alternative though is to wrap the sector up in more red tape, more restrictions that are over-burdensome and impractical, or undermine our ability to help our beneficiaries. Or do we play the game again with the public – do we rip up the rule book, try to create a new regulatory regime?”

O’Brien said that this also applies to financial regulation, with more pressure on the sector to report  on the public money it receives and the campaigning that it does, as well as the salaries that it pays.

‘We can’t pretend we can eliminate risk’

He said in “finance we talk about risk”, and there is a “healthy balance between taking too many risks and being too risk adverse”, with the same is true for regulation.

“We don’t build public confidence if we avoid having a full and frank discussion about the risks in our sector. And we need to have a system to mitigate these risks, but which enables charities to meet the needs of their beneficiaries.

“Pretending we can eliminate risk is not a sensible strategy for any charity, pretending we can eliminate risk in the charity sector is not a sensible regulatory strategy. If we don’t have an honest dialogue on these issues, we are going to perpetually disappoint them. We are going to undermine public confidence, not increase it. We are going to see our sector shrink, not grow as it needs to, in order to meet the enormous demands and challenges that our society faces.