The top 1% of earners in the UK could generate an extra £1.4bn a year for charities, according to new research which recommends more financial guidance for philanthropists.
Currently, philanthropy in the UK is worth close to £20bn annually, though the Law Family Commission on Civil Society report, carried out by Pro Bono Economics, states there is an opportunity to grow this.
It argues that the Financial Conduct Authority (FCA) has a responsibility to drive up the provision of high-quality financial advice and guidance on philanthropy.
Last year, research for the Commission found that the top 1% of earners cut their typical charity donation by a fifth between 2011-12 and 2018-19, despite incomes increasing.
The Commission has now assessed that if every individual in the top 1% of earners who is currently donating below 1% of their income raised their giving to that level, it could generate up to £1.4bn a year for charities.
The report adds the country has a “civic core” of donors who are much more generous than their peers. Indeed, at least 63% of the total value of money donated by the UK’s top 1% of earners comes from less than 0.4% of this group.
‘A missed opportunity’
The research says financial advice and guidance on philanthropy is not consistently offered to people who have the capacity to give.
Moreover, when advice or guidance is given, it is not of consistently high quality which marks “a missed opportunity to achieve genuine positive change”.
The report puts this down to several factors, including “lack of incentive”, “traditional mindsets and culture” and a “lack of regulatory clarity and leadership”.
It highlights the US as an example of what good financial advice on philanthropy can achieve. The stronger philanthropy offering in the US has contributed to the rise in donor-advised funds, which more than tripled between 2015 and 2020, it says.
FCA can invite conversation on the role of philanthropy
Indeed, the report says the UK’s financial services sector has the potential to help drive positive change on a scale few other industries can, citing the movement towards ESG funds and products as demonstrating that potential.
Philanthropy “is an under-utilised tool” and “charities don’t tend to suffer from the greenwashing concerns that many ESG products do”, the report continues, adding that giving to charity is a more reliable method of making a meaningful positive difference in the world than investing in what might be a private sector marketing ploy.
The FCA should consider reviewing the state of the market for financial advice on philanthropy and use its soft power to invite a sector-wide conversation on the important role that philanthropy can play in achieving social impact, the research states.
It adds that by mandating education on philanthropy for qualifying financial advisers and encouraging training on philanthropy to be more widely available as part of continuous professional development of advisers, the FCA can drive up the quality of advice available.
Nicole Sykes, policy and communications director at Pro Bono Economics, said though philanthropy is a major source of finance for charities in the UK, “there is a real opportunity to grow” it and this “requires leadership and stewardship from the FCA, which has the tools and influence required to help unlock far more of the true potential of philanthropy in the UK”.
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