Charities are furious about the government’s proposal to give them less money via the tax system. Well, they would be, wouldn’t they? Hence they’re campaigning frantically to block the proposal. But people interested in effectiveness and impact – and who understand that we’re allocating scarce resources – should support neither the government’s proposed changes (which makes no sense) nor the current system which the campaign seeks to preserve, for three reasons.

1. Your salary goes to donkeys and Eton

Under the current tax regime, any charity can get tax reliefs (of which there are many, including exemption from rates and corporate tax, as well as relief on donations). The charity world is very broad, encompassing organisations which care for donkeys, dogs, cats, hedgehogs, and posh school boys, as well as unarguably noble causes such as cancer and domestic violence.

Many taxpayers would be surprised that a chunk of their salary is subsidising donkeys and hedgehogs. At a time when we are closing public libraries because the Exchequer’s run dry, that’s probably not what they’d choose if asked.

There has never been a proper public debate about which charitable causes HM Taxpayer wishes to subsidise. This row would be a good starting gun for one.

2. Some charities are rubbish

Some charities are better than others, just as some teachers are better than others, some doctors, some athletes. Some demonstrably achieve twice as much as others for the same money, some 10 times, and occasionally, some achieve 25x as much. Put another way, some achieve only 4% of what others could achieve.

Furthermore, some charities don’t need money half as urgently as others do. The Donkey Sanctuary receives over £2000 per donkey, whereas mental health charities receives only £714 per beneficiary*. And if charitable income all dried up today, the Donkey Sanctuary’s could keep going more than two years; Oxfam would last just two months, and Christian Aid about three weeks*.

Donors should allocate their scarce resources based on the evidence about what works, yet currently, as I say, any charity can get tax relief, irrespective of its performance. Why should the taxpayer subsidise the bad as well as the good?

They shouldn’t. In medicine, public funds are only spent after drugs have been evaluated by a public body (NIHCE); in education, schools wanting public money are subject to inspections; economic and scientific research proposals get only public funding after scrutiny by an independent research council.

It seems to me not unreasonable that charities wanting tax subsidy should be asked to produce some evidence of their effectiveness, and that the finite resources should be allocated based on the convincing-ness of that evidence. [Given that the charity sector has been talking for ages about impact, it knows that some charities are better than others, so it’s odd that nobody’s made this point before.]

3. Some non-charities are brilliant

By contrast, tax relief is generally not available to social enterprises. A cafe set up to employ young people with learning disabilities probably would be unable to register as a charity so would get nothing from HM Taxpayer, despite possibly being much more effective at helping those young people than some charities. For a government which only a fortnight ago launched a £600m fund for supporting social enterprises, this seems a curious omission.

What to do?

Clearly HM Taxpayer has very limited resources. They should be allocated on merit and democracy alone. So the public should be asked which causes are eligible for tax relief, and perhaps the government should define the total sum of tax relief available (for my money, human rights is in but donkeys are out), and then to the most demonstrably effective organisations within those causes, irrespective of whether they’re charities, social enterprises, public bodies or anything else.

[As ever, the boys at Philanthrocapitalismhave some measured analysis too. And the Institute of Development Studies thinks that ‘UK tax policies are the least of charities’ problems‘]

*Data from my book It Ain’t What You Give, It’s The Way That You Give It. The calculations are public.

How do you find out whether a charity is achieving anything?–>