The economic turmoil caused by Liz Truss’ brief leadership in the UK will have a lasting impact on the reputation of philanthropists. Here’s what the sector can do to turn that around.

On the evening of Friday 23 September, British financier and Conservative party donor Andrew Law hosted a reception at his home in the affluent London suburb of Chelsea.

Champagne was flowing as British chancellor Kwasi Kwarteng revealed that more radical economic policies were to come following his dramatic budget-cutting taxes for the richest. One financier Michael Spencer had already praised Kwarteng’s plans as ‘very bold and brave’ and another, Robin Burley, who owns a private members club in Mayfair, gave the verbal equivalent of a back slap saying ‘Bravo Kwasi!’

Though the assembled guests wouldn’t have seen it on the night, Law’s gathering of multi-millionaires turned out to be celebrating one of the biggest acts of economic self-destruction in recent times.

Within days, the pound had crashed to its lowest level since 1985. Weeks later, market turmoil brought down both the chancellor and prime minister and, even more significantly, deepened a cost-of-living crisis already unfolding following the ruptures of Brexit, Covid and war in Ukraine.

What does this baleful turn of events have to do with philanthropy?

Much more than meets the eye.

As the wealthiest saw their assets spike during the Covid pandemic, it’s likely that those assembled at the champagne bash – many leading philanthropists and benefactors among them – emerged unscathed or even enriched by the turmoil. As a result, there are increasing calls for government and charities to turn for help to those gathered at Law’s house – this time in their persona as philanthropists.

In some cases, their calls are sponsored by philanthropy.

The think tank Pro Bono Economics (PBE) and the All-Party Parliamentary Group on Philanthropy and Social Investment (APPG) have both issued separate reports in recent months recommending a raft of measures designed to boost philanthropic giving. A ten-point plan by the APPG to ‘unleash the potential of philanthropy and social investment’ includes many sensible recommendations such as the re-introduction of progressive match-based and place-based giving schemes, appointing a philanthropy champion within the civil service, and improving data collection at HMRC.

Both reports call on the wealthiest to close what PBE call a ‘generosity gap’ by ramping up their philanthropic giving.  Former Cabinet Secretary Gus O’ Donnell, who also chairs PBE’s Law family Commission on Civil Society, spoke at the APPG report launch on 2 November. O’Donnell said that ‘people with wealth need to give more’ noting that an increase of giving to 0.4 per cent of income would generate £5 billion – a veritable philanthropy prize.

But while there is no doubt that the wealthiest should be giving more, both reports studiously avoid two of the thorniest questions in philanthropy right now. In doing so, are likely to see their recommendations – worthwhile though they are – fall short of expectations.

Those expectations centre on two issues:

First, the reputation of philanthropy depends on the behaviour of wealth-holders. It follows that the standing of philanthropy can be either enhanced or damaged depending on that behaviour. The fact that a putatively independent commission investigating the future of civil society – and run by PBE – is supported by and named after Andrew Law and the Law family is problematic. How can it credibly produce research on the future of civil society while being associated with the man who hosted a party to celebrate Kwasi Kwarteng’s reckless economic policies? Those policies placed not just the public finances under strain but the fabric of civil society itself.

This inconvenient truth highlights a wider question. How much should the landscape of public policy formation – especially think tanks – be shaped by philanthropy? This case demonstrates the importance of being wary of ceding ostensibly apolitical policy solutions to the people who – in some cases – can be reasonably associated with the very problems we seek to solve.

To its credit, the commission also produced a parallel report aimed at increasing the quality, not just the quantity, of giving. But again, it’s awkward. The Law Family Foundation has had two trustees for much of the time since its founding in 2011. Today, there are just three. Despite backing calls to improve the quality of philanthropy, anyone in our sector – including those experts who published papers with the commission – will tell you that’s poor practice.

Aside from reputational issues and conflicts of interest, the second concern centres around a lack of evidence that voluntary appeals for the richest to give more have had any significant effect. Calls to increase elite giving in the UK are not new. Just look at the Philanthropy Review in 2010 and the Give More campaign in 2012 to see that. Current proposals yet again rely in one way or another in imploring or incentivising the wealthy to give – and to give more in areas of greater need. But what if that has limited effect? There is now a danger that repeating these calls diverts political attention from the more far reaching and consequential action I believe are now required.

Two measures – conspicuously absent from both the PBE and APPG reports – would make a real difference.

The first is a requirement for foundations and DAFs to payout a certain amount of money from their endowment each year. In the US, that amount is 5 per cent. In Australia and Canada, it’s 4 per cent and 3.5 per cent respectively. Even staunch conservatives in the US accept the value of a required payout. It’s impossible to know exactly how much such a requirement would generate in the UK but estimates can be made by looking at the current payouts of our largest foundations and extrapolating what amounts would be contributed with a 5 per cent rule in place. We could be looking at many millions of extra resources for civil society, charities and social movements.

Helpfully, the APPG has already called for a ‘new regulatory regime for philanthropy.’ In the US, foundations are treated as 501c3 private foundations as opposed to 501c3 public charities with the former subject to a payout requirement but not the latter. A philanthropy champion embedded in our civil service could put policy formulation on foundation and Donor Advised Fund payouts at the top of their in-tray. Against a backdrop of multiple crises and hardship, it’s time to move from debating whether we should have a payout to questions of when and how it can be most effectively implemented.

The second measure that philanthropists should champion is a wealth tax.

And that brings me back to Gus O’Donnell. In 2020, an expert commission at the London School of Economics evaluated whether a one-off wealth tax was both desirable and deliverable. In its 126-page report, it concluded it was both. O’Donnell wrote the foreword calling the report ‘an important contribution’ and urging on readers to keep an ‘open mind’ saying ‘there is probably more public acceptance of the need for change than in normal times’. What was true in late 2020 seems even more true today.

It was therefore no surprise that O’Donnell told me at the recent APPG philanthropy event that he thinks Rishi Sunak should introduce a wealth tax to deal with the multi-billion black hole in our public finances.

That, to me, is the kind of conversation which O’Donnell should be leading alongside a coalition of progressive philanthropists. Without it, I fear that the measures in recent philanthropy reports are unlikely to change much. They reek of incrementalism rather than the very bold and brave measures – to borrow a phrase – that the times demand.  

As poverty deepens, and millions struggle to cope with rising prices and insufficient funds to buy food or heat their homes this winter, let’s look beyond donations to food banks, as much needed as they are. We urgently need structural and systemic changes to the landscape of philanthropy and taxation.

And that’s where philanthropy comes in. The sight of leading philanthropists calling for a wealth tax would be a powerful response to the challenges of our times. A US-UK group of Patriotic Millionaires are already demanding just that. In doing so, they are showing a willingness to pay the price of solidarity and exhibiting one mark of true philanthropy – acting against one’s economic self-interest.

For those less persuaded, there is also enlightened self-interest to consider. By calling for a wealth tax, important benefits could derive to philanthropy itself. There is a genuine opportunity to lead by example. Philanthropy suffers from negative stereotypes. Such leadership would dispel misperceptions, inspire hope and transform the reputation of philanthropy for a generation to come.

I hope enough of the UK’s philanthropic elite have the compassion and vision to see the opportunity and take the decisive action for the public good that our times demand.

Charles Keidan is Executive Editor of Alliance magazine.