When the Poor Pay Twice: To Hire Voluntary Bodies to Run Public Services Is to Risk a Form of Regressive Taxation

Article excerpt

The perception of new Labour's public service reform agenda has been more Balfour Beatty than Barnardo's, but Britain's third sector of charities and voluntary organisations has been assigned a crucial, if neglected and barely investigated, role within it.

Last year's government spending review concluded that the voluntary sector could make a special contribution in delivering health, crime reduction, education, and services for children and young people.

In July, the Treasury announced a review of how the sector can make that contribution and it has already launched a 125m [pounds sterling] fund, called "futurebuilders", to give non-profit organisations some of the necessary expertise.

In fact, the voluntary sector already provides a significant proportion of Britain's public services, particularly in areas such as residential care, training and education for the disabled and the homeless, social care, housing and regeneration.

A public service run by the voluntary sector is not the same thing as straight privatisation. Directors of the thin-cat variety, unpaid trustees rather than hordes of rapacious shareholders, a service ethos and a widely acknowledged ability to reach marginalised groups--all these distinguish non-profit organisations from their commercial counterparts.

The problem is the funding. To encourage charities to take over more and more of the public services is to enshrine what amounts to a double tax on the poor. The government develops a collective nervous tic at the merest suggestion that the rich should pay a tiny bit more tax. Yet it seems quite unperturbed at the prospect of the poor paying more.

But charitable donations are inherently regressive-the percentage of income given by donors drops the further up the income scale you go. It has been called "Robin Hood in reverse". Research by Professor Adrian Sargeant of Henley Management College shows that UK donors with incomes of between 5,000 [pounds sterling] and 10,000 [pounds sterling] a year give on average close to 4.5 per cent of their income to charity, while those earning between 40,000 [pounds sterling] and 50,000 [pounds sterling] contribute just 2 per cent. This is corroborated by the Institute for Fiscal Studies, which found in 1997 that the poorest 10 per cent of donors give nearly 3 per cent of their earnings to charity, while the richest tenth give just over 1 per cent.

In theory, this shouldn't matter--a charity contracted to provide a public service should simply be reimbursed by the state, so that its own donated in come can be used to fund additional services. But the reality is different for most charities that have entered the "contract culture". While private companies can make a profit out of public services, voluntary organisations struggle to receive back anything close to the cost of the resources they provide. The result is a large subsidy of the public sector drawn from charities' donated income. …