The ‘hour of need is now’ for charities blasted by pandemic

Caxton manager Andrew Law is funding a new commission to look at the future of charities as the sector faces a £10bn funding gap

The Covid-19 travails of hard-hit sectors such as hospitality and the arts may have grabbed most of the headlines, but Britain’s charities are in big trouble.

Even before counting an army of volunteers, the UK voluntary sector had a paid workforce of more than 900,000 last year, according to the UK Civil Society Almanac. But many of the sector’s best-known names such as Macmillan Cancer Support have been forced into major job cuts

Pro Bono Economics, a charity co-founded by the Bank of England’s chief economist Andy Haldane, believes the eventual toll could hit 60,000. It also estimates a potential funding gap of £10bn as demand surges but donations tail off.

PBE’s latest Covid charity tracker suggests that 43pc of charities are cutting staff, while 55pc fear they will be unable to cope with demand. As many as one in six are cutting fundraising roles, which is likely to exacerbate the shortfall. A £750m bailout from the Chancellor in April was decried in many quarters as hopelessly inadequate.

The urgency of the crisis has prompted a new two-year commission on “civil society” – broadly encompassing not-for-profit areas such as charities, other social enterprises and unions – chaired by former Cabinet Secretary Lord Gus O’Donnell.

The commission launches in December and will take in a broad sweep: looking at civil society’s relationship with the government, how to encourage volunteering and philanthropy, and putting forward recommendations on rebuilding after Covid-19.

The real desire is to give civil society a proper seat at the table: other monikers such as the “third sector” make those involved in the scene flinch, as it implies “third in line” behind public and private sectors.

The official GDP contribution of charities is relatively low at around £17bn. But many people suspect the contribution could be much higher.

Haldane, in a key speech last year, posited that the benefits from positive societal spillovers and the value of informal volunteering could put the genuine contribution of the sector at well above £200bn, or 10pc of output. Hence with the sector on its knees, the stakes are much higher for the UK than the bald numbers suggest.

The man putting the money behind the commission warns “there will be failures” and says “the hour of need for charities is here and now”. 

Andrew Law, the chief executive of hedge fund Caxton, is worth around £550m and has given tens of millions to charities over the years. A product of a “bog standard” Manchester state school who timed his entry into the City well, just after the 1980s “Big Bang”, he says the commission will also look at the potential for “levelling up” a charities sector focused on the South. 

“Recognising all the great work that charities do, is that evenly distributed around the country? Is there some levelling up that needs to be done? In that regard, 'probably' would be my observation,” he says.

“Is the structure of the charity world set up to equally benefit the most needy of areas or do we see, as we do in other aspects of life, that the south-east and London just have a preponderance of this help from philanthropists and charitable organisations even though the rest of the country is probably in greater need?”

Andrew Law of Caxton Hedge Funds Credit: Paul Grover

But the first topic to come under the commission’s microscope will be philanthropy, and particularly why the well-off in the US tend to donate far more than their UK counterparts. In the US, donations are simply written off against tax, whereas the UK has the Gift Aid scheme, “which is a little cumbersome for people to deal with”, Law suggests.

He drops a hint on the potential direction of the recommendations when he says: “I think many people find it quite confusing. Charities have to pay back some of the money, [while] some of the givers have to pay back some of the money through their tax returns.”

The bigger issue could be cultural. He adds: “I think Brits find it almost embarrassing to be successful. It's not celebrated like it is in America. We need to get over that, I think, as a country, if we're going to prosper.

“In the UK, for whatever reason, even people who do it very, very generously hide it. It's almost like it’s embarrassing, or they just perceive it as a private act. But one of the great virtues of people doing it publicly is that it encourages others to do it publicly.” 

Given the economic plight ahead Law argues that the Government should take advantage of rock-bottom borrowing costs and “would be surprised” if the Bank of England didn't take rates negative – although he won’t say if that is the way the fund is betting. “As long as there’s resilience in the banking system to negative rates, why wouldn't rates get negative?” he asks.

Law himself is likely to be in a position to put his hand deeper into his pocket as Caxton, with more than $5bn under management, has done well in a year of turmoil triggered by the pandemic.

According to investors, Caxton Global’s fund was up 34pc in 2020 as of Aug 31. Law’s own single manager macro fund is showing an even bigger 47pc return. 

That might be good for the bottom line, but a global health crisis puts things sharply into perspective. He says: “We’ve all recognised a lot more in the last six months that our lives are finite. We only have so many years left here. Nobody can take their money with them.”