‘Charitisation’ to revolutionise the public sector

‘Charitisation’ is a trend due to revolutionise the world of charity lawyering. The term refers to the process of transferring responsibility for the delivery of public services to charities, or in Government-speak, ‘the third sector’. The value of contracts between charities and the state has been estimated at £5bn and political parties of all hues look set to continue their love-in with the charity world.

Typically, charities enter into contracts with central government, the NHS or local authorities for the delivery of specified services, sometimes also involving a transfer of land or other assets and staff. Often the existing services are failing to meet the needs of beneficiaries and charities are seen as a more user-friendly and politically acceptable alternative to privatisation.

However, the publication by the Charity Commission last month (February) of its ‘Stand and Deliver: The Future of Charities Delivering Public Services’ report serves as a wake-up call to the charities delivering these services, the public sector agencies commissioning them and the lawyers involved in the charity sector.

The report reveals the true scale of the trend, showing that more than 60 per cent of medium-sized charities are contracted to provide services traditionally offered by the state, including health and social care, education and childcare. And one in three of such charities now receive 80 per cent of their income from government contracts.

The report also highlights some significant risks to the charity sector. The majority of the charity contracts were found to be for a single year only, challenging significantly a charity’s ability to plan for future development. More worryingly, nearly half of the contracts did not provide the charity with full cost recovery.

Not only does this financial picture clearly risk destabilising the contracting charities, it also risks compromising the charities’ levels of public support, as the donating public is less likely to support charities that receive significant income from the Government.

Charitisation also poses significant challenges for many in-house charity and private practice charity lawyers. Charity firms face a dilemma if they want to capitalise on this significant development in the market if they lack the requisite expertise in commercial, property and employment law.

For commercial firms hoping to capitalise, meanwhile, it is crucial to note that, while the legal work involved in a charitisation project does involve significant commercial, property and employment law, charity expertise remains vital to ensure regulatory compliance.

In terms of the bigger picture, charities have traditionally spoken out for the most vulnerable and marginalised members of our society, yet an overdependence on funding from the state may compromise their ability to criticise public policy or campaign for legislative change.

Likewise, an overdependence on funding for the delivery of only those services defined by contract risks the loss of the very innovation and flexibility that make charities attractive to the Government and beneficiaries alike, as charities will become locked in to particular ways of working. And a gap between the funding opportunities available and the needs that must be met could develop to the disadvantage of those in need.

The Charity Commission is calling upon charity trustees to protect themselves from ‘mission drift’. If the wake-up call is not heeded by the Government and charities alike, we risk losing the distinctive nature of charity in favour of a breed of not-for-profit service deliverers, whose agendas are driven by government policy rather than centuries of charity law tradition.