In the last issue of Alliance Jake Hayman made a strident case in favour of a minimum payout percentage for UK foundations. There is much to admire about Jake’s wish to derive maximum social benefit from foundation resources. However, the article contained a number of significant points of misinformation, omission and misunderstanding.

There is a fundamental mischaracterisation of foundations as a sort of cabal of ‘silent self-preservers’. In reality, endowments are an enduring source of support for civil society, requiring careful, context-specific stewardship.

This often involves difficult choices about balancing the needs of today with the needs of tomorrow, all within the framework of a regulatory regime that obliges trustees to use their endowment and its income solely to advance their charitable aims.

More broadly, the comparison to the US is misleading. The US has no equivalent to the Charity Commission and there are much more expansive allowances around what counts as charitable spend, meaning a comparison of a say, a 4 per cent average UK payout vs the mandatory US rate of 5 per cent, is simply not comparing like with like. It is also worth noting that Canada has a mandatory payout rate of 3.5 per cent.

Perhaps most importantly, one of the key benefits of the foundation model is the ability to fund flexibly and also, in certain cases, in perpetuity. There is also evidence showing the imposition of a mandatory spend rate in the US actually suppressed spend over the long term.

Considering foundation assets can only be used to serve an organization’s charitable mission, the question remains as to why spending, for example, 4 per cent one year, and 6 per cent the next, dependent on context and need, is worthy of opprobrium, whereas bluntly enforcing a spend rate of 5 per cent year-on-year is held up as a panacea despite all evidence to the contrary.

Keiran Goddard Head of external affairs, Association of Charitable Foundations (ACF)

See articles on the payout debate from the June issue by Krystian Seibert and Paul Ramsbottom and in the March issue by Cathy Pharoah and Jake Hayman.

Also in the June issue, see letters on the topic of philanthropy studies, ‘Welcoming the evolution of philanthropy studies‘ by Michael Liffman and ‘Shifting gears on philanthropy studies‘ by Juliet Valdinger.

For more discussion on philanthropy payouts, check out Alliance Audio: Philanthropy Payouts.