Cameron learning from Reagan

David Cameron made some important commitments in his speech at the Guardian last night. He clearly sees an expanded role for charities and social enterprises in the delivery of public services, and crucially as he outlined in response to a question from Stephen Bubb, that role will be funded by the tax payer.

This is very welcome clarity. That commitment is not something which is common to all centre-right politicians as they approach public service reform, as Philip Collins’ excellent recent piece in the Times highlights. There is a widely held fallacy that charities and philanthropy can easily compensate for a withdrawing state. This is simply not the case.

To explore that false argument in more detail, it goes something like this: Charities operate where the state does not. The services we provide are additional to those which are paid for through our taxes, hence we are motivated to give. The needs of the less advantaged in our society are met either by the state (though public services), or by charity; and it is the relative proportion of state provision versus charity support which separates “small state” countries like the USA from “big state” countries like Denmark.

This view is false because it fails to recognize what has been a seismic change over recent decades. Charities now deliver £billions of services for the state, not outside of it. The very significant growth and professionalisation of the sector is a function of this greater interaction with the state.

However, a cursory glance at the history of the relationship between the state and charities would go a long way to explain the false view of the relationship. As AJP Taylor famously wrote, until 1914 the average Englishman could pass through life and hardly notice the existence of the state. Vast swathes of core services were delivered by charities and paid for through philanthropy. During the 20th Century the state slowly took on more and more responsibility for services which were previously charitable. The probation service was nationalised in 1907, and the creation of the NHS in 1946 effectively nationalised a huge volume of charitable activity. During the 1970s the state was at its apex, and for a short time is was largely true that the role of charities was additional and peripheral.

Since then, though, and particularly in the last 15 years, the clear water between the state and charities has drained away. As market based reforms have dominated the new era of public services, charities have found themselves delivering services not as an alternative to the state, but rather for the state. ACEVO is proud to have championed this transformation from within the sector and helped to build the capacity of the sector to deliver more state funded services. Charities are very well placed to deliver services which focus on the needs of the user, joining up fragmented government silos, tackling the root causes of social problems rather than treating their symptoms, and seeking our innovation. These are qualities which are being increasingly valued by public commissioners.

The polarity between state and charity therefore no longer exists. More than a third of the money charities spend comes directly from government, and the links go much deeper than that. Each year central government alone spends over £ ½ billion on building the capacity of the third sector to be more effective at delivering services and providing advocacy.

This transition in the role of the sector is not one, however, with which the public have engaged. Recent research by ACEVO and YouGov showed that only 16% of the public were in the right ball-park in estimating the proportion of charitable income which comes from government. However it is a vital point for policy makers to understand, and as Philip Collins rightly says they must learn from history.

To risk over-stating the point again, it is this: The charity sector has only grown in size and strength because of its relationship with a state which has been committed to using charities to deliver public services in a state funded market. The capability of the sector to thrive is therefore completely intertwined with buoyancy in those markets. It is simply not plausible that charities could step in to the space vacated by a shrinking state, because they will be shrinking too. Even if a smaller state was a catalyst for greater philanthropy, the public would need to roughly treble their current giving to make up for the loss of state funding.

President Reagan faced this dilemma in the early 1980s. He had been elected on a significant tax-cutting mandate and saw the charitable sector as a cheap alternative to federally funded services. However, Reagan and his advisors did not appreciate the extent to which charities were already spending money given directly to them by the federal government, or given to them by the states on behalf of the federal government. Cutting those budgets would cut the life support of the very organisations who were meant to take on the delivery of those services, at precisely the time when demand on their services was rising. In the areas of health and social care in particular Reagan was not therefore able to cut spending as much as he had originally wished.

After spending a week at the Conservative Party conference I left much enlightened about the party’s broader policy agenda. But there are a variety of views within the party about the extent to which the state should shrink. To believe in the fallacy outlined above will be a temptation which all elements of an incoming Conservative Government will need to resist, especially when the party has a clear desire to reduce public spending and stimulate philanthropy.

George Osborne has claimed that the Conservatives are the true inheritors of Blairite market reforms in public services. For this to be true he and his boss must be sure that all of their colleagues understand that charities are not an alternative to the state, but a key partner. The theme of the week in Manchester was to prepare the public for spending cuts. If we really are “All in this together” then the only solution, as Cameron recognises, is for the Conservative party is to use the best of the modern enterprising third sector to bring about real public service reform. A greater role for the third sector in public service markets can both improve outcomes for service users and use public resources more effectively. These outcomes can not be achieved without recognizing the reality of the sector’s relationship with government. Pulling the rug out from under us would not create the stronger charity the sector which the party says it wants, and crucially it would result in a double whammy for service users.