Eric Pickles wants to place more limitations on how charities spend grant money, but his department gives out little money in grants. David Ainsworth says that government needs to think again about grant funding.

Charities seem to face a curious dichotomy when it comes to government grants. They’re supposed to be too dependent on them, but they aren’t actually getting any.

In the last week we have had a huge furore over Eric Pickles accusing charities of being sock puppets, funded by government to lobby itself. The sector is supposed to be a poodle of government, dependent on handouts.

First, it’s questionable whether Eric Pickles is right on principle. He may have a valid point – it’s arguable that government shouldn’t hand out money which is spent lobbying government for more money. But on the other hand, there’s certainly a logistical problem. How do you prove what money was spent on what? And are you allowed to criticise at all? What counts as lobbying?

More importantly, he’s nailing his ideological colours to the mast, by saying that he doesn’t like the idea of charitable campaigning and he wants to place limits on it. Although he’s scarcely the first minister to take that view.

And the report he quotes as evidence for the problem – Sock Puppets: How the government lobbies itself and why, available here – is one of the least convincing bits of research ever. It's hopelessly biased, weakly evidenced, and opposed on ideological principle to any State funding of charities.

The main point I want to address, though, is that Pickles is chasing a non-existent problem. Because almost no grant funding is being given away to most charities in the first place. Pickles’ own department, for example, gave out only £29m of grant funding to charities in the year to March 2014.

I would like to argue that if government is going to exercise itself on how its funding is spent, it might have the decency to provide the funding in the first place.

What funding does government give?

We can’t talk for sure about local government. But central government gives £1.5bn a year to charities in grants.

This sounds like a lot, but last month we analysed those figures, and found that most of that cash goes to 20 or so large organisations, most of them quangos. Most of the rest went in highly-targeted funding allocations for things the sector didn’t usually care much about.

So only a small amount of open grants funding is available, mostly from the Cabinet Office and from the Department for Education. Even this has dropped hugely during this Parliament. The Office for Civil Society, in particular, has been bowdlerised. OCS spending dropped from around £250m under Labour to more like £50m.

It’s not quite as bad as it might seem. Some of the funding which goes to the top 20 big organisations is passed on – particularly that from the Arts Council – but funding is patchy, and depends very much on being in a specialised sub-sector.

In short, there is no central government grant funding going to most charities.

There isn’t the same data for local government, but in most places, the direction of travel is probably the same. When you look at grant funding, it’s actually going to relatively few bodies, to do very specific things.

Should government be making grants?

You can see the argument that it’s not the job of government to grant-support voluntary organisations. Why should taxpayers’ cash be handed out to charities, rather than spent on taxpayers directly? A lot of the public certainly don’t like the idea. Just read the comments under The Times story about Pickles.

The question, really, is whether taxpayers get good value for money from grant funding.

Obviously, I’m biased, but I would argue that they do. Government has a huge stake in solving what it calls “intractable social problems” and benefits enormously from charitable innovation in this regard. And if you want charitable innovation, the way to get it – mostly – is by giving grants.

That’s not to say that a grant is always the answer. There is a cogent argument that when you try something big for the first time, particularly at scale, you should be prepared to share the risk, and preferably move it to a third party who can afford it, in exchange for a risk premium. So something like a social impact bond is a good move.

And when government does want a service delivered, and has a clear idea of what it needs, a contract makes a lot more sense.

Why doesn’t government give grants?

Government seems to feel that before it hands out money, people should compete to show they can use it most efficiently. And that it should decide how its own money is spent. It also struggles to interact with hundreds of small organisations. Government likes monolithic structures – it is one, after all – and prefers to hand out one big lump sum.

So far, so reasonable, you might say. It’s their money, they should spend it how they like.

But that only works if government already knows the answers, and if it has a sensible competitive regime, and if market-driven interactions are always the best way to solve social problems. None of those things is true, and the last one is not even particularly plausible.

And it isn’t government’s money, it’s public money, and government shouldn’t spend it to suit civil servants and politicians. It can, and does, but it shouldn’t. It should spend it in the best way to solve the problems the money is supposed to solve.

The bizarre thing is that a huge amount of money actually flows out of government to charity. There’s more than £11bn of contracts and more than £3bn of tax relief, and the number of tax reliefs for donors has risen hugely in recent years.

This is based on a good principle – money given away for the public benefit should not be taxed – but it does suggest that government thinks that the public, rather than charities themselves, knows how money should be spent to solve social problems.

This seems odd.

So is this going to change?

Well, not under the Tories. Listening to Eric Pickles, or Chris Grayling, or even the civil society minister Rob Wilson, you have to say the direction of travel is pretty clear.

Labour, on the other hand, have committed, in theory, to a move back towards grant funding. It’s pretty much the key commitment from Lisa Nandy, the shadow charities minster. Listening to Nandy’s contribution to a hustings debate earlier this week, all her language is about a focus on communities – small, organic, connected. But I am not sure that Labour really know what a move back to grants would look like.

And without a decisive policy push from the top, rather than just a general commitment, it’s unlikely that anything will happen. Civil servants and council officers will carry on in the same way they always have, aggregating cash into a handful of big contracts.

So if Labour does get in, there’s an opportunity. There’s still an ideology problem, though. Where the Tories are instinctively marketist – their first answer is to hold a bidding war – most of Labour is instinctively statist – their first answer is to do everything themselves. So it remains to be seen whether Nandy can push her agenda with more success than the Tory minister for civil society, Nick Hurd, who could obviously see what needed to be done but just didn’t have the power to do it.

What would an effective grants policy look like?

I’d like to see government allocate sensible levels of funding, with a long-term plan, targeted at broad fields of work. The Arts Council is worth taking as a model. It has problems with execution, but it’s a good model for how government can effectively fund delivery organisations. I’d like to see a lot of the principles around its development applied in other departments – youth, or sport, or rehabilitation. You would have a large number of long-term pots of funding, for many heads of charity, not based on the whims of ministers and vicissitudes of circumstance.

Obviously when government announces a £40m fund to help charities build reserves, or innovate in technology, or buy more aspidistras, or whatever the fashion of the moment is, then people will take it. But it’s much better to just give long-term consistent funding.

Anyway, there are any number of things I’d like to see from government grants.

1.  It should be core funding, not project funding, because charities consistently say that £1 of unrestricted funding is worth almost as much as £2 of restricted.
2. The people handing out the cash should be professional funders.
3. It should be concentrated on deprived areas, and involve ordinary people in delivery as much as possible (I like the Big Local idea, for example).
4. The application process should be simple, and dovetail as much as possible with other funders.
5. It shouldn’t have time limits on getting it out of the door.

Almost the opposite of how Libor cash is being handed out, for example.

Will it happen?

Almost all of the above is probably a pipe dream. The next government is likely to start out as cash-strapped as the last one, and it’s unlikely to suddenly realise how to be a good funder. But you never quite know, do you? Even a cash-strapped government has a couple of billion pounds lying around for pet projects. And one influential figure can change a lot.

If you are going to sell an idea to government, it's a good idea to show that it will:

1. Look good to the taxpayer
2. Save it money down the line, and
3. Make it look decisive and innovative when it’s running out of ideas.

Large-scale permanent pots of grant funding for small charities could be made to do all three, I think. And after all, we do have the Arts Council and the Big Lottery, so the argument can we won.

So there is, out there on the horizon, the faint chance of hope. But I’m not holding my breath.