Select Committee on Culture, Media and Sport Minutes of Evidence


Memorandum submitted by the National Council for Voluntary Organisations

1.  INTRODUCTION

About NCVO

  1.1  NCVO is the largest general membership body for charities and voluntary organisations in England. NCVO has sister councils in Wales, Scotland and Northern Ireland. Established in 1919, NCVO gives voice to over 1,600 organisations ranging from large "household name" charities to small self-help groups involved in all areas of voluntary and social action at the local level. NCVO champions the cause of the voluntary sector. It believes that the voluntary sector enriches society and should be promoted and supported. It works to increase the effectiveness of the sector, to identify unmet needs and to encourage initiatives to meet those needs.

NCVO's Submission

1.2  This submission:

    —  outlines NCVO's expertise in relation to this inquiry;

    —  sets out NCVO's recommendations to the Committee;

    —  summarises NCVO's research into the voluntary sector funding environment and the impact of the National Lottery on charitable incomes;

    —  provides more detail on the arguments behind NCVO's recommendations in relation to:

      —  additionality;

      —  equality;

      —  sustainability; and

      —  the Lottery operator.

NCVO's expertise in relation to this inquiry

  

  1.3  NCVO welcomes the opportunity to submit written evidence to the Culture, Media and Sport Committee's inquiry into the operation of the National Lottery. The National Lottery provides a significant income stream for charities and voluntary organisations. Its operation is therefore of particular importance to the voluntary sector. Our submission has been informed by consultation with our members.

  1.4  NCVO has always been supportive of the National Lottery provided that it generates additional money for charities while minimising any potentially adverse effects on their income and fundraising activities. Indeed in 1993 NCVO's then President, Sir Campbell Adamson, argued that a successful Lottery would be a Lottery which generates additional money for good causes but which also balances the desire to maximise revenues with social concern.

  1.5  NCVO's guiding principles for the distribution of Lottery proceeds are:

    —  independence from government;

    —  local decision making;

    —  credibility and legitimacy;

    —  awareness of the voluntary sector and its needs;

    —  use of established expertise in grant making;

    —  accessibility for the full range of voluntary organisations;

    —  transparency of decision making; and

    —  sustainability.

  1.6  NCVO has undertaken work on the National Lottery since 1991, when a Private Member's Bill was introduced proposing a National Lottery for the arts, sport and heritage. NCVO has devoted considerable effort to try to ensure that the National Lottery works for charities. We lobbied hard on the National Lottery Bill and secured many important concessions for the benefit of charities. These included a commitment from the Government that it would monitor the impact of the Lottery on charitable income. NCVO has closely monitored the National Lottery, both before and after its launch in 1994, and has undertaken an extensive programme of research and policy work of its own.

  1.7  NCVO's programme of work since 1991 has included the following:

    —  monitoring and assessing the impact of the National Lottery on individual giving and the financial situation of charities and voluntary organisations;[3]

    —  assessing the impact of the National Lottery on the wider funding environment;

    —  supporting the development of a sustainable funding environment for the voluntary sector and protecting that environment whenever necessary;

    —  influencing the policies and practices of the boards distributing Lottery funding to the voluntary sector; and

    —  disseminating information to promote understanding of the funding priorities of the Lottery distributors.

  1.8  Key achievements include:

    —  submission of written and oral evidence to the National Heritage Committee's 1996 inquiry into the operation of the National Lottery;

    —  publication of the report Charity and the Lottery: the competition for loose change in 1996, comparing pre and post Lottery data on public donations to charities;

    —  an outgoing programme of research tracking individual giving since 1994. By demonstrating a decline in individual giving the research was influential in the outcome of the Government's review of Charity Taxation; and

    —  working with the Lottery distributors, and particularly the National Lottery Charities Board and the New Opportunities Fund, to ensure they have full access to voluntary sector views on their programme development by running consultation and briefing meetings.

2.  SUMMARY OF RECOMMENDATION

Research into the voluntary sector funding environment—has the Lottery had an impact?

2.1  While a causal relationship cannot be established, and a complex set of factors was almost certainly at play, the National Lottery could certainly have been one factor which had an impact on individual giving. NCVO strongly recommend that the Committee take this into account when considering the operation of the National Lottery and its impact upon charities and charitable giving.

Monitoring the impact of the Lottery on charities and charitable income in the future

  2.2  Given that NCVO's research does not rule out a link between the National Lottery and the decline in giving to charities, NCVO recommends that the Committee seek a continued commitment from the Government to ongoing research to monitor the impact of the Lottery on charities and charitable giving. NCVO also believes that the Lottery Commission should take some responsibility for monitoring the impact of the Lottery on charities and charitable income.

Additionality

  2.3  We strongly recommend that the Committee examines the issue of additionality. We do not believe that the additionality principle should be sacrificed. Lottery initiatives must be additional to what should properly be Government spending and not a substitute for it—now or in the future. A clear distinction needs to be maintained between Lottery programmes and any mainstream Government initiatives they complement.

  2.4  The perception remains that the substantive content of New Opportunity Fund programmes had already been decided by the Government before the Department for Culture Media and Sport offered the first full consultation opportunity. In relation to the choice of new funding programmes, effective and meaningful consultation needs to take place with all relevant stakeholders on the principles involved as well as the detail. While adequate consultation has taken place on the detail, there has been (grossly) inadequate consultation on the principles involved. We recommend that this is one important area that the Committee should examine in the course of its inquiry.

Equality

  2.5  NCVO recommends that the Committee examines the division of Lottery money between the Lottery distributors with a view to making recommendations to Government. In particular we suggest that the Committee should carefully consider the argument for each of the Good Causes to receive an equal share of Lottery funding.

Sustainability

  2.6  We recommend that the Committee examines the case for Lottery funding to become more focused on the local level, in preference to national or regional grant funding.

  2.7  We would encourage the Committee to examine the scope for further delegation of decision making to the local level.

  2.8  We recommend that the Committee revisit the "community chest" model of local grant giving and the delegation of Lottery grant making to other specialist grant givers at the local level.

  2.9  We ask the Committee to recommend that Lottery funders must be prepared to meet the overhead costs associated with managing a piece of work. Their funding should also support the development of the management of voluntary organisations. Lottery funders should therefore see their funding as part of a programme of long term investment.

  2.10  The Committee should examine strategies for creating a more sustainable Lottery funding environment with the Government and the Lottery distributors. Strategies which should be examined include a greater use of endowment funds to "grow the cake" and the provision of cheap loan finance to help voluntary organisations overcome the three year funding trap.

  2.11  NCVO recommends that the Committee examines the assumptions behind the Lottery tax and consider the case for a proportion of the tax revenues generated to be devoted to creating a more sustainable funding environment for voluntary organisations and charities. For example, a proportion of the Lottery tax revenue could be used to fund a strategic, cross-sectoral campaign to promote the Government's new tax-effective giving measures.

The Lottery Operator

  2.12  We recommend that the Committee endorse our view that the distribution of Lottery money is not the concern of the Lottery operator.

  2.13  The Committee should seek assurances from the Government and the National Lottery Commission that whatever happens there will be no disruption to the continuation of Lottery funding for charities. This remains a welcome stream of income for charities.

3.  OTHER RECOMMENDATIONS WHICH WE WOULD LIKE TO DRAW TO THE ATTENTION OF THE COMMITTEE

Monitoring the impact of the Lottery on charities and charitable income in the future

3.1  The Government could achieve added value from research into the impact of the National Lottery on charities' incomes if, at the same time, it were to monitor the impact of the Government's recent changes to charity taxation.

Sustainability

  3.2  We believe that the Lottery distribution bodies need to collaborate more closely and consider the scope for further rationalisation of their activities.

  3.3  It is crucial that the Lottery's potential to develop and support voluntary sector activity, particularly at the local level, is fully exploited.

  3.4  Even though they are not bound by the Compact, NCVO wish to see the Lottery distributor's sponsoring government departments encouraging them to consider, in a more strategic way, how they could implement the Compact and its Codes of Practice, on the basis that they represent good practice.

  3.5  NCVO would welcome the opportunity for the voluntary sector to work with the Lottery Distributors, and the NLCB in particular, to explore the potential for creating a more sustainable funding environment.

  3.6  Lottery distributors should consider the relationship between grant-maker and grant-recipient. They should consider how to develop their role towards one of supporter and promoter of best practice, rather than policeman, by providing advice and support throughout the life of a grant and beyond.

The Lottery Operator

  3.7  We have argued in the past that the licence to run the National Lottery should include a requirement that advertisements should state clearly and/or visibly that the most effective way of giving to charity is to give direct. This should have currency given the Government's recent attempts to simplify and modernise the ways in which individuals can give to charity tax effectively.

  3.8  We particularly wish to draw the Committee's attention to the fact that giving tax effectively is undoubtedly the best way to give to charity to maximise their returns. A sector-led campaign to encourage giving to charity, and tax effective giving in particular, is currently being planned with the support of the Chancellor of the Exchequer. It would, therefore, not be advisable for the National Lottery operator to compete with this by taking steps to encourage the public to give to charity through the Lottery.

4.  RESEARCH INTO THE VOLUNTARY SECTOR FUNDING ENVIRONMENTHAS THE LOTTERY HAD AN IMPACT?

Current overall size and contribution of the UK voluntary sector

4.1  The overall current expenditure of UK general charities is £13.4 billion[4]. Gross current income stands at £14.2 billion. Voluntary income (grants and donations) is the largest type of income (46.1 per cent) with almost one-fifth of gross income coming from donations given by the general public. Sales of goods and services account for a third of UK voluntary sector income and relate almost entirely to purchases by government (15.3 per cent) and the general public (14.6 per cent). When considering both sales and voluntary sector income, the general public are the single largest source of income (34.8 percent). In addition the voluntary sector receives 4.8 per cent of its total income from businesses in the form of direct financial support while returns on investments account for over a fifth of UK voluntary sector income.

  4.2  There are 136,000 active general charities in the UK although almost 90 per cent of gross income is accounted for by fewer than 10 per cent of organisations.

NCVO Research

  4.3  NCVO carries out an extensive programme of research into:

    —  financial trends among general charities; and

    —  charitable giving by the general public.

  4.4  The research is based on:

    —  Office for National Statistics Survey of Charities undertaken in 1990-91 and in 1994-95;

    —  Detailed analysis of organisations' published accounts;

    —  NCVO/NOP consumer research undertaken since October 1994; and

    —  Charities Aid Foundation surveys of individual giving from 1990-91 to October 1994.

  4.5  The aim of the research is to develop our understanding of the UK voluntary sector economy and the trends within it. Through the research we can identify factors which may have contributed to these trends. We can also explore the impacts various political, social and economic factors have on the voluntary sector economy to help organisations plan future activities. The research presented here assesses the contribution made by various sources of income (or funding) to UK voluntary organisations between 1994 and 1997. The three main sources of income considered are:

    —  voluntary income (grants and donations);

    —  earned income (sales of goods and services); and

    —  returns on investments.

  4.6  From the research we can conclude that changes in charities' incomes in the period 1994 to 1997 are attributable to a complex interaction of factors rather than a single cause. Although there has been a decline in individual giving between 1994 and 1997, the National Lottery is only one factor which may have had an impact on this income stream.

Income trends 1990 to 1997

  4.7  It is estimated that the gross income of the UK voluntary sector[5] for 1997 was £13.1 billion[6]. During the early 1990s gross income of the UK voluntary sector increased in nominal terms by over 50 per cent (55.8 per cent or £4.7 billion) and by a quarter (25.4 per cent) in real terms. This period of rapid growth was followed by a slow down in growth from 1994 onwards (Figure 1).

  4.8  Analysis of two ONS Surveys of Charitable Organisations for 1990-91 and 1994-95 showed a growth rate in nominal terms of 9 per cent per annum. This was considerably above the prevailing rate of inflation (except for 1991 which was the last year of "high" inflation, when the retail price index was running at almost 6 per cent). The analysis for 1995-96 and 1996-97 identified growth rates of 4 per cent or less, which was barely above inflation. This pattern of growth is supported by evidence from other sources, most notably for the very largest organisations by the Barclays/NGO Finance Charities 100 Index, Charities Aid Foundation Top 500 fundraising charities and the Baring Asset Management Top 3,000 UK Charities[7].


Earned Income

  4.9  For income to be classified as earned income there has to be some form of sale of a good or service (ie the recipient or their agent has paid a fee). This category of income is akin to the operating income of businesses. For charities these sales activities also have to fall within the stated charitable objects of the organisation. Sales which fall outside an organisation's charitable objects are usually undertaken through a trading subsidiary. The complexity of this category of income is compounded by the immensely diverse nature of the goods or services "sold" by voluntary organisations.

  4.10  In 1997 earned income, or sales of goods and services, constituted just over one third (£4.4 billion) of the total income of general charities. Government and the general public each contributed £2 billion, the remainder coming from businesses (£311 million) and other voluntary organisations (£188 million).

  4.11  In total, earned income increased from £3.9 billion in 1994 to £4.4 billion in 1997. This constituted a real increase of 3.1 per cent over that period. While the very largest organisations with incomes over £10 million showed a significant increase in earned income (9.7 per cent), organisations with an income between £1 million and £10 million saw a real decrease (-2.8 per cent) in earned income.

Table 1

Sales of Goods & Services
Real change
1994 to 1997
Total
3.1%
     persons
1.4%
     companies
11.9%
     charities
19.1%
     non-profits
-27.3%
     overseas agencies
-16.6%
     government
3.5%


  4.12  The growth in contract income from government was the most significant, building on the largest income stream to begin with (3.5 per cent growth in real terms) and there was a modest real increase in sales of goods and services to the general public (although this relates entirely to the growth in subscription income and reflects the greater emphasis placed on this by larger organisations). The other changes show higher levels of real change but relate to relatively small amounts of income, although there was a strong rise in earned income from businesses reflecting the sponsorship and other commercial relationships being established between business and voluntary organisations.

Voluntary income/grants and donations

  4.13  Voluntary income is defined as that given freely with no commercial consideration and is usually in the form of grants or donations. This category of income is of particular importance to the voluntary sector and allows organisations to provide goods and services at no cost or with subsidy. Individual giving by the general public is therefore of fundamental importance to the voluntary sector economy.



Patterns of voluntary income

  4.14  In 1997 voluntary income to UK general charities stood at almost £6 billion (£5.9 billion) representing almost 45 per cent of the total (including legacies). Donations from the general public were the single largest source of voluntary income (£1.8 billion). This was almost matched by grants made by government (£1.7 billion). However, if legacies are included with donations from the general public then their contribution increases to £2.6 billion. The next largest source is from other charities, most notably grant-making trusts and foundations. In 1997 this stood at over £1 billion, and was likely to increase even further as National Lottery grants started appearing more frequently in the accounts of general charities. Donations and grants from business stood at £255 million, although corporate financial support may increasingly be classified as earned income (sponsorship/cause related marketing) and corporate support to voluntary organisations may come in a non financial form (for example gifts in kind, eg donated goods, and gifts in time, eg secondments). Finally, the covenanted profits of trading subsidiaries are classified as voluntary income and currently contribute £163 million to voluntary sector income.

  4.15  Voluntary income is most significant for smaller voluntary organisations where it constitutes over half (52.7 per cent) of the total income. The contribution of voluntary income to total income decreases with size of organisation and the very largest organisations receive less than a third (29.2 per cent) of their total income from grants and donations. However, three quarters of the very largest receive some voluntary income and legacies are most significant for these organisations (12.3 per cent) compared with less than 3 per cent for organisations with incomes less than £1 million. Overall over two-thirds of all general charities receive some voluntary income. Indeed, to some the receipt of voluntary income is one way of defining a voluntary organisation or charity.

  4.16  The contribution of voluntary income to the overall income of general charities increased substantially between 1991 and 1994, (from 42.9 per cent to 46.2 per cent). From 1994, however, the contribution fell back to 44.7 per cent. Whilst voluntary income increased in nominal terms from £5.4 billion in 1994 to £5.9 billion in 1997, in real terms this represented a small decline (0.7 per cent). The very largest organisations saw a real increase of almost 2 per cent whilst organisations with incomes between £1 million and £10 million saw a decline of almost 5 per cent in real terms. Smaller organisations saw little change in real terms between 1994 and 1997.

Table 2

Voluntary income
Real change
1994 to 1997
Total
-0.7%
     Grants and donations
0.1%
     persons
-3.9%
     companies
0.1%
     trading subsidiaries
29.7%
     charities
2.8%
     non-profits
-8.0%
     overseas agencies
-10.8%
     government
1.6%
     Legacies
-5.6%


  4.17  Legacies showed the most significant decline in real terms (-5.6 per cent) although legacy income for the very largest organisations, where it is most significant, remained in line with inflation. The decline was concentrated in smaller organisations. When legacies are separated out, voluntary income as a whole remained stable but this hides a number of significant movements:

    —  a real decline was recorded for donations from the general public with the decline concentrated in smaller organisations;

    —  a modest real increase in grants from government;

    —  a larger real increase in grants from other charities (grant-making trusts and foundations); and

    —  profits covenanted from trading subsidiaries increased substantially in real terms although their overall contribution to income was small.

Returns on investments

  4.18  Income received in the form of returns on investments includes dividend payments from stocks and shares, interest payments from bank and building societies and rental income from property investments. The realised gains and losses on the disposal of investments are also included in this category. Whilst many businesses also benefit from income from such non-operating activities, it is particularly important to the voluntary sector because many charities are endowed (established with a capital fund that generates income which they can apply for charitable purposes), and for some charities they only have that one source of income.

Patterns of returns on investment income

  4.19  General charities receive almost £2.4 billion (£2,360 million) in returns on investments in the form of rents, dividend and interest payments but this rises by over £400 million to £2.8 billion if the aggregate gains on the disposal of investments is added. Together they represent over a fifth (21.1 per cent) of voluntary sector income. The largest component is dividend income at £1.5 billion, interest payments at £498 million and rental income at £319 million.

  4.20  Returns on investments increased significantly (10.5 per cent) in real terms between 1994 and 1997 with spectacular growth (22.8 per cent) recorded for the very largest organisations. The real increase for organisations with incomes between £1 million and £10 million has also been substantial (7.6 per cent) but the growth for smaller organisations has been modest (2 per cent). The real increase in dividend income (15 per cent) explains the spectacular growth in returns on investments between 1994 and 1997 although the real increase in interest payments is also significant (7.8 per cent). Rental income decreased in real terms by 3 per cent.

Table 3

  
Real change
1994 to 1997
Investment income
10.5%
     rent
-3.3%
     dividend income
14.8%
     interest income
7.8%
Gains (losses) on disposal of investments/adjustments
-12.7%


Consumer expenditure surveys

  4.21  Surveys of the expenditure behaviour of the general public provide the most direct approach to understanding whether people's individual giving has changed following the introduction of the National Lottery. In terms of consumer-based research the Individual Giving Surveys (IGS), originally commissioned by the Charities Aid Foundation and conducted by Public Attitude Surveys Ltd and since 1994 commissioned by NCVO and undertaken by NOP, are the most robust source of data on individual giving and in particular small scale expenditure[8]. The Family Expenditure survey is seen as a reliable source of information on larger and planned donations to charity but may under-represent smaller, more spontaneous giving[9].

  4.22  The IGS provides statistically significant evidence to conclude that the proportion of people donating to charity in Great Britain, which had changed very little from 1987 to 1994, fell in 1995 and continued to fall in 1996 and 1997 (Figure 2). This finding masks significant variations among different methods of individual giving. The proportion donating through purchase methods (raffle tickets, jumble sales, charity shops etc) showed a marked fall following the Lottery's launch, from 46 per cent in 1993 to 24 per cent in 1997. It halved between 1992 (48 per cent) and 1997 (24 per cent). This fall is statistically significant as are the falls in giving by philanthropic or planned methods (although the falls in these two methods of giving are less marked than in purchases).


  4.23  In respect of mean average donations, there is evidence that overall individual giving fell between 1992 and 1997. However the patterns among the sub-components are more complex, with philanthropic donations falling, and planned donations increasing—though neither change was statistically significant. The decrease in purchase was statistically significant.

  4.24  Plotting year-on-year changes illustrates the complex pattern of individual giving from 1992 to 1997. Overall the IGS survey show a trend of growth in the early 1990s then a steady decline from the end of 1994. The growth from 1992 to 1994 is not statistically significant, but the change from 1994 to 1995 is. The only other statistically significant change occurred between 1996 and 1997. Looking at the three sub-components of individual giving, all three showed statistically significant changes between 1994 and 1995. The most marked fall was for purchases, which fell from 46 per cent in 1994 to 28 per cent in 1995. While there was another statistically significant fall between 1995 and 1996, the figures levelled out in 1997.

  4.25  In 1998 more than half of respondents gave less than £1 per month. This has fallen from £2.50 in 1993, to £1.50 in 1995 and £1.00 in 1996. In contrast 3 per cent of the population are elite givers, donation over £50 per month. They contributed almost half of total donations in 1998.

  4.26  The IGS is also able to provide an overall (grossed up) estimate of individual giving in Great Britain in 1992 compared with 1997. In 1997 the figure was £4.51 billion, compared with £5.7 billion in 1992. There was a real term fall of 31 per cent from 1993 and 1996.

  4.27  The monthly analysis provided by the NOP/NCVO consumer research has identified a seasonal trend—a peak in November, declining through December and January, recovering through February to a peak in April/May and falling away again through the summer. However, in 1997 this seasonal trend was broken when the recovery process in the early part of the year halted. This coincided with the introduction of the mid-week National Lottery draw.

  4.28.  Whether or not the Lottery has had any impact on charities' income it should be clear that different charities will be affected in different ways by changes in the voluntary sector funding environment. For example a decline in individual giving will hit fundraising charities the hardest and will hit harder still those charities unable to invest in fundraising to offset that decline (eg smaller fundraising charities).

Income to charities from National Lottery funding

  4.29  While relatively insignificant in terms of total voluntary sector revenue, Lottery funding has represented a new source of income for many general charities. The National Lottery Charities Board in particular has attempted to target smaller organisations. Other Lottery boards are still largely devoted to capital funding and many of the organisations they fund are outside the definition of general charities adopted by organisation-based research undertaken by NCVO. Figures for Lottery funding, given here, therefore focus on the NLCB as an indicator.

  4.30  The total grants allocated by the NLCB across the UK in 1998-99 were £247.3 million.[10] Of this, 6.3 per cent was allocated UK-wide, 6.3 per cent England-wide, 7.4 per cent in Northern Ireland, 11.9 per cent in Scotland, and 5.7 per cent in Wales. The balance was made up by regional grants in England, the small grants scheme, Awards for All, and international programmes.

Charities Income Research

  4.31  In 1994 the Government made a commitment to monitor charities' incomes following the introduction of the National Lottery in November 1994. A study into trends in charities' incomes was announced by the Home Office in October 1995. The research set out to analyse trends in charities' incomes in the period 1991 to 1997 based on data derived from the published accounts of voluntary sector organisations of all sizes and activities. The research findings have yet to be published.

Conclusion

  4.32  The type of data presented in the organisation-based and consumer-based surveys is unable to demonstrate definite cause and effect relationships. It was beyond the scope of any of the studies to collect a wider array of economic data that would help us to determine such relationships. However, it is clear from the data presented here that there were some changes in some of the income streams at around the time the Lottery was introduced, not least a widely recognised decline in individual giving. While a causal relationship cannot be established, and a complex set of factors was almost certainly at play, the National Lottery could certainly have been one factor which had an impact on individual giving. NCVO strongly recommend that the Committee take this into account when considering the operation of the National Lottery and its impact upon charities and charitable giving.

5.  MONITORING THE IMPACT OF THE LOTTERY ON CHARITIES AND CHARITABLE INCOME IN THE FUTURE

  5.1  Despite the current uncertainty over the appointment of the next Lottery operator both prospective bidders have pledged to raise £15 billion for the Good Causes. This compares with the £10 billion pledged by the current operator under the existing licence. Even given the not-for-profit nature of The People's Lottery bid, the eventual operator will need to increase ticket sales in order to reach this target. It remains to be seen whether playing the National Lottery can be stimulated beyond the existing demand, despite the claims of the rival bidders for the Lottery Operator. Nevertheless if the Lottery Commission is willing to appoint an operator who is pledging to raise more money for the Good Causes than under the current licence, and accepts the need for increased ticket sales to achieve that target, then NCVO believes that the Lottery Commission should take some responsibility for monitoring the impact of the Lottery on charities and charitable income.

  5.2  Given that NCVO's organisation and consumer based research does not rule out a link between the National Lottery and the decline in giving, NCVO would also like to see a continued commitment from the Government to ongoing research to monitor the impact of the Lottery on charities and charitable giving. There should be an early assessment of the appropriateness and effectiveness of the original research and of what more could be done to disentangle the complex factors involved. NCVO believes that this should include an early assessment of the appropriate level of resources required to undertake this work. The Government could also achieve added value from the research if, at the same time, it were to make an assessment of the impact of the Government's recent changes to charity taxation, including the modernisation and simplification of Gift Aid and the boost to Payroll Giving.

6.  ADDITIONALITY

  6.1  NCVO is concerned that the Policy Directions given to the New Opportunities Fund by the Government represent a potentially dangerous erosion of the principle of additionality and could set a new precedent for the way decisions on the choice of Lottery funding programmes are made. While NCVO has no objection to Lottery money being spent on health, education and environment projects per se, we wholeheartedly believe that Lottery initiatives must be additional to what should properly be Government spending and not a substitute for it—now or in the future. We do not believe that this principle should be sacrificed. The Lottery should provide additional funding for good causes—as was always the intention—it should not be used to fund essential services or Government-inspired programmes. A clear distinction needs to be maintained between Lottery programmes and any mainstream initiatives they complement.

  6.2  When the Rothschild Royal Commission on Gambling in 1978 recommended a UK national lottery for good causes it was on the basis that a government of any party, subject to day to day political pressures, finds it impossible to devote more than meagre resources to good causes of the kind that are desirable rather than essential. The paradox which the Commission identified was that while each individual cause may not be essential, it is essential for the health of our community that some resources are devoted to such purposes.

  6.3  We suggest that in these two statements the 1978 Royal Commission identified what should be among the defining features of the additionality principle. The underlying reason why the principle has now been so dangerously eroded is related to the poor definition of these features from the outset. Therefore, in order to define the principle of additionality there are two key issues:

    —  how we define the difference between "desirable" and "essential"?

    —  what is a "good cause"?

  6.4  Research studies have, in the past, shown that the public identifies the term "good cause" with charities[11]. NCVO research suggests that the public consider that they have made a contribution to charity when they buy a National Lottery ticket, rather than a contribution to national health or education spending. For example Lottery players view the Lottery as a good way of helping charity or sports and the arts[12]. In a 1996 survey for NCVO, respondents overestimated the amount of Lottery money specifically earmarked for charities by over 300 per cent—suggesting a figure of 18 pence in the pound compared with the actual 5.6 pence allocation. In an ICM poll conducted in September 2000 for NCVO[13], 95 per cent of respondents thought that education should be funded by the Government rather than the Lottery, while 89 per cent of respondents thought that the health service should be funded by the Government rather than the Lottery. In contrast 61 per cent of respondents thought that charities should be funded by the Lottery and only 32 per cent thought they should be funded by the Government.

  6.5  These results give us an insight into "the people's" definition of "essential" and "desirable", with health services and education services being classed as essential while the work of charities is perhaps classed as a mixture of essential (and therefore funded by Government) and desirable. Our poll overwhelmingly suggests that people believe health and education are the Government's responsibility.

  6.6  The Government set up the New Opportunities Fund (NOF) as a new "good cause" to fund health, education and environment initiatives that "are additional to programmes funded from taxation". However, a consultation paper issued by the Department for Culture, Media and Sport on NOF, issued in November 1998[14], stated that projects funded under the cancer prevention, detection, treatment and care programme "will be in addition to those currently planned by the Government" (our emphasis). This could be seen to represent a re-interpretation of additionality to mean `additional to spending which is not already there or proposed'. Using this interpretation, the Government would be free to plan the use of Lottery funds into future programme areas that could potentially be core government responsibilities.

  6.7  The Policy Directions issued by the Secretary of State for Culture, Media and Sport to NOF provide further evidence of a potential re-interpretation of additionality, particularly when compared to those Directions issued to the NLCB. Although NOF is required to draw up a strategic plan containing an assessment of needs and its priorities in dealing with them, the Directions point out that each of the initiatives funded by NOF "complement wider policies intended to improve the health, education and environment of the United Kingdom". The Government has also directed that NOF initiatives are to be "delivered by a combination of public, private and voluntary organisations, in collaboration with existing providers and programmes" (our emphasis). The Directions therefore draw attention to the Government's strategies and targets in each of the three areas and highlight how the NOF funded programmes must fit in with them. In effect, NOF programmes will assist the Government in carrying out its strategies and programmes and meeting its targets, which in some cases would not otherwise be met. For example, the Directions state that:


    "The Government has set the target of ensuring that all public libraries are connected to the National Grid for Learning, and that public library staff are trained to use it, by 2002. The Fund's (NOF) support for the training of public library staff and content creation is intended to provide vital support in these two areas which will be critical to the successful development and roll out of the Public Libraries IT Network."

  6.8  The role played by the Government in deciding NOF's funding programmes should be considered in this context. In direct contrast to, for example, the National Lottery Charities Board (NLCB) and most other Lottery distributors, NOF initiatives are "specified"[15] by the Government, to be developed and administered by NOF. Proposed NOF initiatives are subject to consultation and Parliamentary scrutiny, but they have not been subject to the same degree of consultation as the programmes run by, for example NLCB. In particular, the Government undertook little apparent consultation with the voluntary and community sector over the choice of funding programmes. To NOF's credit they undertook extensive briefing and consultation with the voluntary sector in setting up the programmes. However, the perception remains that the substantive content of the programmes had already been decided by the Government before the Department for Culture Media and Sport offered the first full consultation opportunity. In effect while adequate consultation took place on the detail, there was (grossly) inadequate consultation on the principles involved. This concern should certainly be addressed in future and we therefore recommend that this is one important area that the Committee should examine on the course of its inquiry.

  6.9  NCVO has grave concerns at the precedent the overall approach, outlined here, sets in the way decisions on the application of Lottery money are made. NCVO's view is that decisions on the choice and design of funding programmes should be taken by an independently appointed body based on a thorough assessment of needs and priorities and in consultation with all relevant stakeholders (as is the case for the NLCB, for example). If decisions are not taken by the distributors themselves, then independence, trust and transparency will be threatened and the principle of additionality will be weakened.

  6.10  In a recent ICM poll carried out for NCVO 72 per cent of respondents felt that an independently appointed body should decide how Lottery money should be spent, while only 12 per cent of respondents felt that the Government should decide.

7.  EQUALITY

  7.1  NCVO were very disappointed at the Government's decision to divert the majority of the Millennium stream of funding to the New Opportunities Fund. The aim of the Lottery was to raise additional money for all of the good causes. On balance this has not been achieved. Even taking into account Lottery grants, voluntary sector income has declined in real terms. This has come at a time when the Government is increasingly recognising the contribution that the sector can make. We were also concerned about how the decision was reached.

  7.2  The NLCB receives more than four times as many applications as all of the other Lottery grant makers put together. To date the total amount requested from NLCB is £10.6 billion while the total amount awarded is £1.8 billion (ie nearly six times greater). There is a strong argument for Lottery money to be more fairly divided among the Lottery distributors. NCVO recommend that the Committee should examine the division of Lottery money between the Lottery distributors with a view to making recommendations to Government. In particular we suggest that the Committee should carefully consider the argument for each of the Good Causes to receive an equal share of Lottery funding.

8.  SUSTAINABILITY AND DISTRIBUTION

  8.1  An analysis of the sector's funding trends by NCVO and the Charities Aid Foundation suggests that action is required to create a more sustainable funding environment, and where possible, to "grow the market". Strategies identified by the analysis to achieve these twin, but linked, aims include:

    —  stopping the decline in the proportion of individuals giving to charity;

    —  assessing the potential for greater loan finance;

    —  developing strategies to encourage the sector to make best use of available resources by working in alliances and partnerships where appropriate;

    —  facilitating the development of local fundraising mechanisms or alliances; and

    —  encouraging good practice in grant giving, particularly in relation to the availability of "core" or strategic funding.

  8.2  The Government has acknowledged its responsibility for developing an environment in which charities and the voluntary sector can flourish. In particular they have taken valuable and welcome steps to help stop the decline in individual giving, following the recent review of charity taxation[16].

  8.3  The Government's moves to improve the way the Lottery distributors distribute Lottery grants have generally been very welcome.[17] Developments by the distributors themselves, such as the Awards for All scheme, and the Millennium Awards scheme have also been warmly welcomed. The Government should now do more, together with the Lottery distributors, to consider the part they can play in further developing the sustainability of the sector.

National versus local funding

  8.4  We would argue that there is an increasingly strong case for Lottery funding to become more focused on the local level, in preference to national or regional grant funding. The improvements made to the distribution system for Lottery funding following the 1997 White Paper have been welcome, for example allowing greater delegation of decision making to officers at the local level. The Millennium Awards scheme has also proved that it can be effective and successful to delegate grant making to established charitable/grant making organisations, with over 81 Award Partners taking on this role. We would therefore encourage the Committee to examine the scope for further delegation of decision making to local level. We also recommend that the Committee revisit the "community chest" model of local grant giving and the delegation of Lottery grant making to other specialist grant givers at the local level. Any such delegation should, however, be based on a recognition of the importance of the Lottery as an independent source of funding. The priorities of other funding organisations should not be adopted wholesale.



Co-ordination

  8.5  NCVO have in the past expressed concerns relating to the apparent overlap between NOF's programmes and those of the other Lottery distributors; in particular to those of the NLCB. NCVO argued that NOF would need to work closely with the other distributors, and particularly the NLCB, to ensure that potential applicants received clear guidance on where to target their applications to avoid wasted effort and disillusionment. We also argued that the Lottery distributors needed to take responsibility to avoid applications "falling between two stools". In this respect NCVO particularly supported close collaborative working between NOF and NLCB.

  8.6  We remain concerned at the degree of confusion and apparent overlap which continue to exist between the programmes of the Lottery operators, and NOF and NLCB in particular. Recent attempts to clarify the differences between the two distributors, to help applicants, appear to have done little to help. Indeed one report claimed it had served to create more confusion[18].

  8.7  The Awards for All scheme has been widely welcomed by the voluntary sector and is a good example of how the Lottery distributors can work together to deliver a better service. However, NCVO is concerned at the large industry that appears to have grown up around distribution of Lottery money. We consider that the distribution bodies need to collaborate more closely and consider the scope for further rationalisation of their activities.

Short term funding

  8.8  The time-limited nature of Lottery grants often creates considerable problems for voluntary organisations. The belief amongst Lottery funders appears to be that there are considerable amounts of untapped funds within local communities which voluntary organisations can draw on to sustain Lottery funded projects beyond the life of the grant. In many cases it is not feasible to expect a project to become self-sufficient within the three-year limit of Lottery funding, particularly in an environment in which funders constantly demand new, innovative projects. There are examples of charities having to close services after three years when their Lottery funding ends, despite a continuing demand and a need for those services. This short-term financial environment hampers the sector's ability to run and develop services to meet the needs of disadvantaged communities. It is therefore crucial that the Lottery's potential to develop and support voluntary sector activity, particularly at the local level, is fully exploited.

The compact on relations between government and the voluntary and community sector

  8.9  The NLCB's support in developing the Compact on relations between government and the voluntary and community sector has been very welcome, as has their involvement in the development of the accompanying Codes of Practice.

  8.10  NCVO would now wish to see the Lottery distributors' sponsoring government departments encouraging them to consider, in a more strategic way, how they could implement the Compact and its Codes. While they are not bound by the Compact, we would still wish to see sponsoring government departments encouraging the Lottery distributors to consider the Compact and its Codes in terms of good practice guidelines. The Codes of Practice on funding and on consultation have particular relevance to the Lottery distributors since they provide funding to the voluntary sector and consult with them on matters of policy and design.

Availability of "core" or strategic funding

  8.11  The Compact contained an undertaking by Government to take account of the recommendations of the Better Regulation Task Force report, Access to Government Funding for the Voluntary Sector, and to pay particular regard to the concept of strategic funding. Lottery distributors do not help to create a conducive environment for good funding relationships where they refuse to contribute to "core" or "strategic" funding.

  8.12  A recent report commissioned by the Association of Chief Executives of Voluntary Organisations (ACEVO)[19],[20] summarised the problems created by this funding environment. The current environment:

    —  does not allow for the creation of mature and stable voluntary organisations able to take opportunities and make a full contribution;

    —  does not encourage transparency, but rather encourages complex renaming of activities, and restructuring of organisations in pursuit of funding;

    —  does nor facilitate a creative or mature relationship between funders and funded;

    —  is extremely expensive. Voluntary organisations lose staff as projects come to an end, and then need to re-recruit; funders receive applications for activities that have just come to an end of a period of funding; and

    —  risks public sympathy and support for voluntary organisations. At a time when donations by members of the public are seen as having reached a plateau, it is dangerous to run a funding regime that assumes that backroom costs can be met by individual donations, while front line costs are met by the statutory sector.

  8.13  We also argue, along with the ACEVO report. That management effectiveness bears a cost and therefore funders must be prepared to meet the overhead costs associated with managing a piece of work. Their funding should also support the development of the management of voluntary organisations. Funders should therefore see this funding as part of a programme of long term investment. This is one tangible way in which Lottery distributors can play their part in further developing the sustainability of the sector.

Potential future strategies and solutions

  8.14  NCVO would now welcome the opportunity for the voluntary sector to work with the Lottery distributors, and the NLCB in particular, to explore the potential for creating a more sustainable funding environment. We believe it will be important for the Lottery distributors to work together, and to work with charity managers, to help them to develop a sustainable funding base. Crucially, Lottery distributors will need to consider the distinction between the sustainability of projects and the sustainability of benefits to users/clients.

  8.15  Both methods and advice systems will need to be developed alongside existing models. For example, the Arts Council Stabilisation Fund is one model, which could be considered. The Millennium Awards Scheme Endowment, to enable the scheme to run in perpetuity, is another model which the Government, together with the other Lottery distributors, could usefully consider as one way of tackling the issue of sustainability. Links can also be made to NCVO's Sustainable Funding project, which aims to increase the quality and extent of good practice in sustainable funding in the voluntary sector.

  8.16  Lottery distributors should consider the relationship between grant-maker and grant-recipient . They should consider how to develop their role towards one supporter and promoter of best practice, rather than policeman, by providing advice and support throughout the life of a grant and even beyond.

  8.17  Among strategies we believe should be considered are a greater use of endowment funds to "grow the cake" and the provision of cheap loan finance, in addition to grants, to help voluntary organisations overcome the three year funding trap, while preventing Lottery grant-making from becoming "silted up".

Lottery tax

  8.18  NCVO have always been concerned at the 12 per cent tax on the total turnover of the Lottery, which is higher than most other countries operating state lotteries. When the National Lottery was launched the Government justified taxation of its proceeds on the basis that spending would be diverted from purchase of other taxable items to purchase Lottery tickets. The tax was designed to compensate for this loss.

  8.19  NCVO recommend that the Committee examine the assumptions behind this tax and consider the case for a proportion of the tax revenues generated to be devoted to creating a more sustainable funding environment for voluntary organisations and charities. For example, the sector has called for strategic, cross-sectoral promotion of the new giving measures announced by the Chancellor in the 1999 Pre-Budget and 2000 Budget reports in order that their potential can be realised. A proportion of the Lottery tax revenue could be used to fund such an initiative.



9.  THE LOTTERY OPERATOR

  9.1  NCVO hope that whoever is finally awarded the contract will ensure the National Lottery is run in an efficient and effective manner which enables the maximum amount possible to be distributed to the good causes but with due regard for social impact. We have already expressed concern in this submission at the increased amounts of money both bidders have pledged to the good causes over the period of the new licence and the potential impact increased ticket sales may have on charitable giving (see paragraph 5.1).

  9.2  The process of selecting the new Lottery operator must be seen by the public, and other stakeholders, to be of the highest integrity. We will be looking to the Government and the National Lottery Commission to ensure that whatever happens there is no disruption to the continuation of this welcome stream of income for charities. This is especially important in light of the decline in individual giving which many charities have experienced since the early 1990s.

  9.3  NCVO would also like to express concern at recent reports that The People's Lottery has pledged to establish more of a connection between playing the Lottery and giving to charity[21]. If the reports are correct, their intention appears to be to make people more aware of what Lottery money is doing. We are particularly concerned that this intention is apparently based on their belief that it is important to establish a much greater correlation between playing and giving. We are also concerned at the suggestion that The People's Lottery will want more influence over how Lottery money is spent.

  9.4  The Government opted for a commercially run Lottery because, it argued this would be most likely to produce the biggest Lottery turnover. Moreover, the Government thought it was important to separate raising and distributing money to good causes as the roles require different expertise. We can see no reason to believe that this is not still the case. We believe that, given appropriate Policy Directions and strategic planning based and adequate consultation with stakeholders, the existing Lottery distributors are best placed to make decisions on the choice and design of Lottery funding programmes and where Lottery grants are given. In a recent survey carried out for NCVO, 72 per cent of respondents thought that an independently and publicly appointed body should decide how Lottery money is spent. Only 11 per cent thought that the Lottery operator should decide. NCVO strongly believes that distribution of Lottery money should not be the concern of the Lottery operator. We recommend that the Committee endorse this view.

  9.5  Some of the original requirements placed on the National Lottery operator, such as the restriction on ticket sales in pubs, door-to-door or in the street, were partly designed to ensure that charities did not lose donation income as a result of the National Lottery. However the Government at the time also accepted the argument that the way in which the Lottery is promoted is of particular concern to charities. The Government therefore agreed that the code of practice on Lottery advertising could cover, if the need arose, how charities are used in this advertising. This commitment was important not only because of the potential impact of decisions about Lottery advertising on charitable income, but also because many charities are concerned to ensure that their work is presented to the public in a way which is sensitive and does not patronise or offend the people with whom they work.

  9.6  NCVO lobbied for the code of practice on Lottery advertising to cover the use of charities in Lottery marketing. In our 1996 submission to the National Heritage Select Committee we highlighted the fact that many of the advertisements for the National Lottery had not made clear to the public the most effective way of giving to charities. We argued that this should be considered, firstly because of public confusion over the amount of money that goes to the good causes in general and charities in particular (see para 6.4); secondly because of the decline in individual giving. Indeed we argued that the licence to run the National Lottery should include a requirement that advertisements should state clearly and/or visibly that the most effective way of giving to charity is to give direct. This should have currency given the Government's recent attempts to simplify and modernise the ways in which individuals can give to charity tax effectively.

  9.7  Giving tax effectively is undoubtedly the best way to give to charity to maximise their returns. NCVO and the Charities Aid Foundation are currently discussing with the Government the best way to promote the new tax measures for giving to charity. As a result of the tax measures the Chancellor's stated target is to see millions more giving to charity so that by the end of the year 2002 £1 billion more will have been given to charity[22]. It would not, therefore, seem advisable for the National Lottery to take steps to encourage the public to give to charity through the Lottery, effectively competing with a sector-led campaign to encourage giving to charity, and tax effective giving in particular. If an individual gives £1 direct to a charity through the Gift Aid scheme (which is now possible) the total value of the gift will be £1.28. If an individual purchases a Lottery ticket, only 28 pence goes to the good causes, of which less than 6 pence is allocated to charities via the NCLB.

10.  CONCLUSION

  10.1  NCVO continues to support the National Lottery, provided that it generates additional money for voluntary organisations while minimising any potential impact on their income and fundraising activities. While a casual relationship is not proven, we believe that the National Lottery could certainly have been one factor which had an impact on individual giving over recent years. In addition we believe that the principle of additionality should be preserved and strengthened in order to protect the interests of the good causes. Lottery funding is a welcome stream of income for charities. We will therefore be looking to the Government and the Lottery Commission to ensure that whatever happens there is no disruption to this stream of income.

  10.2  That the Government has acknowledged its responsibility for developing an environment in which charities and the voluntary sector can flourish is very welcome. The valuable and welcome steps they have taken to halt the decline in individual giving through the review of charity taxation are particularly welcome, as are their improvements to the way Lottery distributors distribute grants. We also welcome developments by the distributors themselves in response. We now look forward to working with the Government and the Lottery distributors to explore their potential for creating a more sustainable Lottery funding environment for charities and the voluntary sector.

October 2000




3   NCVO has been involved in long term research, conducted by the Home Office in collaboration with other government departments and voluntary sector organisations, to monitor charities' incomes following the introduction of the National Lottery in November 1994. Back

4   Passey, A. Hems, L. and Jas P. (2,000) The UK Voluntary Sector Almanac 2,000. London: NCVO. Back

5   The definition of the "voluntary sector" used here refers to general charities. Back

6   Hems, L and Passey, A (1998) The UK Voluntary Sector Almanac 1998-99, London: NCVO. Back

7   Each data set has been compiled using different bases and requires interpretation before direct comparisons can be made (eg the Charities 100 Index includes a number of organisations, such as museums, which fall outside the general charity definition because they are allocated to general government for national accounts purposes). Back

8   Trends in these data need to be treated with some caution since the methodology changed in 1994. However, the 1994 NOP data are consistent with the 1993 patterns (both records 81 per cent of the population donating to charity). Back

9   Lee N, Halfpenny P, Jones A, and Elliot H (1995) "Data sources and estimates of charitable giving to Britain", Voluntas 6(1) pp 39-66. Back

10   NLCB (1999) Annual Report 1998-99, London: NLCB. Back

11   National Council for Voluntary Organisations (NCVO) (1992) The Likely Impact of the National Lottery on Charitable Donative Income: Summary of the findings from an NOP survey with NCVO analysis, London NCVO. Back

12   National Council for Voluntary Organisations (NCVO) (1996) Charity and the Lottery: The competition for loose change (based on research commissioned by NCVO from NOP), London: NCVO. Back

13   The poll was carried out by ICM for NCVO between 15 and 17 September 2000. Telephone interviews were conducted with a representative sample of 1,055 adults aged 18 plus from across the UK. Back

14   DCMS (November 1998) New Links for the Lottery: Proposals for the New Opportunities Fund, Cm 4166, London: HMSO. Back

15   Directions to the New Opportunities Fund under Section 26 (1) of the National Lottery Etc Act 1993. Back

16   A review of charity taxation was announced in the July 1997 Budget. On 9 March 1999 the Government published the long-awaited consultation document on its review of charity taxation. The 1999 Pre-Budget report and the 2000 Budget included the Government's response to the review. Back

17   The 1998 National Lottery Act implemented proposals designed to ensure that Lottery money is spent according to strategies that take account of need, that Lottery funding builds local communities and is more accessible to the full range of voluntary organisations-particularly smaller, community-based projects. The Act also allows distribution bodies to solicit bids, delegate decision making, pool resources and make non-cash awards. Back

18   Funding Digest Issue 112: August 2000. Back

19   Unwin, J (1999) Who pays for core costs? Neither rhetoric nor complaint-a proposal for modernisation. ACENVO. Back

20   Formerly the Association of Chief Executives of National Voluntary Organisations. Back

21   Third Sector magazine, 7 September 2000, Issue 191. Back

22   NCVO's Annual Conference, 9 February 2000. Back


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 23 January 2001