Martyn Oliver, chief executive of 3SC, has said that the Charity Commission needs to “get off charities' backs” and support them in building reserves.
Oliver was speaking at the Employment Related Services Association (Ersa) conference, during a panel session on valuing the voluntary sector in welfare-to-work schemes.
Oliver said the Charity Commission had a role to play in supporting charities wanting to take part in government public service contracts.
“I remember my old boss at the RNIB being berated by the Charity Commission for building up large reserves. Well, the private sector relies on its capital base to do the work it does in public service delivery.”
He continued: “We require a funding strategy for the sector aka reserves enabling leverage and risk which mitigate taking part in payment-by-results contracts. You need trustees which are confident that the organisation can deliver services. And the Charity Commission needs to get off charities' backs and allow them to build balance sheets.”
A Charity Commission spokeswoman said: "Keeping money aside as a reserve can protect your charity against drops in income or allow it to take advantage of new opportunities.
"However by law charities must spend the income they received within a reasonable period of time, unless there’s a good reason not to."
Dawn Austwick, new chief executive of the Big Lottery Fund, made similar comments to Oliver when she was heading up Esmée Fairbairn Foundation, saying it was “shocking” the role that funders play in encouraging charities to have weak balance sheets. Speaking to civilsociety.co.uk, Austwick explained that the tendency of funders not to give grants to organisations with high reserves and strong assets, “subconsciously discourages those organisations from building robust balance sheets”.
Speaking to civilsociety.co.uk yesterday, Oliver said that the perception needed to change that reserves were just “dead money” or money not being spent on the cause.
“It can allow you to attract investment and capitalise, which enables you to grow to scale, so you can make a wider investment in your beneficiaries.”
He added that the sector had two massive advantages in delivering public services which were not often mentioned. “It’s the elephant in the room,” he said. “Charities pay no corporation tax and have no cost of capital. We should use these things to the sector’s advantage, as well as building a balance sheet strategy through reserves.”
Lack of commissioner support for social finance
Oliver also said that social investment had a real role to play in helping charities win public service contracts. “We’ve raised £2m through social investment,” he said.
During the panel session, Steve Swan, welfare-to-work director at Tomorrow’s People, also had high praise for social finance’s role for charities involved in public service delivery. “I love it,” he said. “We’ve been funded by the Impetus-PEF through social investment. It’s wonderful as all the risk sits with the investors. But we are determined to exceed targets, because we know if we don’t, we won’t get investment from them again.”
Swan added that he did not think that there was a dearth of people wanting to invest in social finance, but a lack of commissioners willing to buy it. But overall, he concluded: “In the future, there is a lot of potential in social finance. It is important for the charity sector.”
Work Programme criticism
The panel also discussed the Work Programme, which has been widely unpopular with the charity sector.
Oliver said it was rushed and the sector was not prepared for it. “Clearly the groups which benefitted do not equate with their distance from the labour market,” he said.
He also accused prime contractors of delivering mixed and inconsistent messages. And he suggested that there should be specific programmes for specific groups. “Why are disabled people not treated differently? Innovation and payment-by-results are not bedfellows. You have to pay for innovation and accept it might not work.”
Swan added that there was a tension between what government said on wanting diversity in the Work Programme and the commercial realities of payment by results.
Commenting on the lack of referrals from primes to charities on the Work Programme, Swan suggested that there should be a penalty if a prime promised, say, 100 clients, and a charity only ended up receiving ten.
ERSA recommendations
As part of the conference, Ersa, the trade body for the welfare-to-work sector, launched a report calling for "evolution not revolution" in the design of future programmes for the long-term unemployed.
Key recommendations outlined in the report include:
Retaining payment by results for the majority of provision, but paying providers for achievements of milestones for those with disabilities or who are the very furthest from the labour market. In addition Ersa is calling for a separate ring-fenced budget which could only be accessed to purchase from specialist organisations who would then be paid for ‘distance travelled’ measures. This is likely to be particularly helpful to the charity sector.
Supporting subcontractors through measures including requiring the use of a standard expression-of-interest form and standardising contract terms.
Introducing minimum standards for commissioning including a duty to consult on programme design, comply with minimum commissioning timelines and publish assumptions underpinning targets and financial models.
