Structural improvements: ideas for supporting a thriving civil society

Dan Corry

CEO, New Philanthropy Capital

Making the most of the great potential for good that civil society offers requires marrying the passion and drive that exists within the sector with a keen focus on maximising impact. To get there, we need smarter regulation, investment in our social infrastructure and, above all, improvements in access to and use of data.

Britain would be a much better place if our civil society was performing at the top of its game. At its best, civil society provides many things other sectors cannot: humane services, support and a voice for the vulnerable, and wellbeing and social capital for our communities, to name but a few. It lies at the heart of a well-functioning society and democracy.

But while all this is obviously a good thing, we should never be satisfied. If we want to do justice by the people and causes that matter, we should always have one eye on the ‘best’ or ‘optimum’ civil society. That means exploring new ways[1] to support the pluralist, campaigning and slightly messy world which is the social sector.

To unleash a civil society that does something like the maximum it could, we need to nurture a system where achieving social impact is incentivised and innovation and effectiveness are encouraged. Here I propose how we might go about achieving it, and how the government can enable, and not undermine, the chances of a thriving social sector.

Optimal outcomes

An optimal sector, whatever the sector, is one that allocates resources to get the most utility from what goes into it. This requires incentives and behaviours that help achieve this at an individual, organisational and sectoral level. It requires a degree of transparency about who is doing what and where, and it needs some way of comparing across activities and organisations. It’s a tall order, and one that is not fully achieved anywhere – except in some fantasy, free market economic texts. Yet it does sort of work in some sectors.

Market forces play this role, to a degree, in the private sector. The market dictates that the best generally rise to the top and poor performance cannot be hidden forever. If you rest on your laurels a challenger will take your place. The ineffective go bust; replaced by bold new entrants with new approaches and new innovations. Shareholders, who want a good financial return, push firms as far as they can go. And everyone competes according to agreed and enforced standards, metrics and regulatory structures which allow comparisons to be made. All these elements, external to the firm itself, give signals that, broadly speaking, guide resources to the right place.

In the public sector, democracy does a very imperfect version of directing resources the right way. Politicians allocate resources to please the electorate, and if services are poor then policy makers get to know about it pretty fast.

The fundamental challenge faced by the charity sector is that the feedback loops found in both the private and public sector simply do not exist here.

“The evolution of the social sector is driven not by the preferences of users or consumers, or even by efficiency or impact, but by something else altogether: passion and mission.”

There is no invisible hand of market forces to help calibrate the system in real-time towards productivity and innovation. For charities, the person who pays isn’t usually the one who uses the service. If there is a customer, then it’s the funder. But what would that make the beneficiary? The product? It’s a slightly awkward model for putting user preferences at its heart.

Nor does feedback come from citizens saying what they think very clearly and publicly, as they might in the public sector. User voice is often very faint in the charity world, especially if the client can’t really go anywhere else.

To the outsider, this absence of feedback loops must make civil society look like a random mess. The evolution of the social sector is driven not by the preferences of users or consumers, or even by efficiency or impact, but by something else altogether: passion and mission.

A heart, and a head

The passion and mission that drives people is perhaps the most valuable thing that anyone coming to the charity sector for the first time from the private or public sector must recognise. And passion is not always considered, or evidence led. So while every person who works in the sector wants to improve the world, they don’t necessarily end up doing this in the most effective and efficient way possible. The result is that civil society is almost certainly creating less social good than it could do.

One response is to say that we should not care. The sector is about passionate people doing things of their own volition, outside the clutches of the state or the demands of profit-seeking. Surely charities have a right to exist and funders have the right to support them? So long as they’re not hurting anyone, why not leave them alone to do as they wish? It’s an argument of course but it would mean sacrificing a lot of the potential to do good that the sector has.

“We can’t just conjure up the natural feedback loops present in the private or public sector. But we can develop ways to mitigate the absence of them.”

Another answer is to say we need charities to behave more like their private sector counterparts. This explains why some are attracted to more commercial segments of the sector, like social enterprise and impact investing. But while these are important, copying the private sector only gets us so far and can take us down dangerous alleys.

So, what do we mean by ‘impact’? At its heart it’s simply a case of capturing the extent to which the charity’s activities are meeting its stated mission: for instance, the number of people the homelessness charity has directly helped get off, and stay off, the street.

How then do we improve impact given the voluntary nature of the sector and its lack of clear and sharp accountability to anyone? At NPC we face this conundrum every day. We can’t just conjure up the natural feedback loops present in the private or public sector. But we can develop ways to mitigate the absence of them. As set out below, such an approach requires a stronger focus on regulation, institutions, social infrastructure and – perhaps most of all – data.

The power of regulation

There is a lot that regulation can do to nudge charities towards impact. For example, the Charity Commission sets out the obligations of trustees. We think they should be rewritten to focus far more on mission and the impact achieved for beneficiaries.

We also think charity trustees should be required to report each year on the impact their charity is achieving and how it plans to improve (with reporting requirements proportionate to size). Charities that repeatedly fail to demonstrate any impact related to their core mission should have their charitable status revoked.

Further, the Charity Commission should encourage anyone wanting to start a new charity to use its searchable register[2] to find others with similar aims in their area. They can then assess whether there really is a ‘gap in the market’; if there isn’t, they might be better placed supporting an existing charity instead. This is intended as a nudge to think about duplication, not a block on starting new charities.

To help charities embrace this impact agenda, the government should ensure support for things like the Inspiring Impact[3] programme (a joint effort between NPC, NCVO and others) that has already helped many smaller charities assess their impact and adjust their strategies accordingly.

The importance of political institutions

But for civil society to truly flourish we need institutional changes in the way government works.[4] All government departments should be thinking about the role of charities and civil society as they develop, implement and review their policies. For this to happen, there needs to be a strong body at the centre of government to champion the sector, and the minister responsible for promoting the social economy, charity, philanthropy, and community activity should be in Cabinet.

The civil society minster should enforce a new ‘civil society policy test’ via a dedicated Cabinet Committee. At all stages the committee would ask: could civil society help achieve this better than the state? And what does this policy do to civil society? Each public service should publish an action plan for involving the voluntary sector that is scrutinised by the relevant subject Select Committee and by the Charities Committee of the House of Lords.

The need for investment in social infrastructure, not just physical

We need to build up our ‘social infrastructure’ too. The local physical and social networks – like libraries and parks, sports facilities, and meals on wheels – that enable connections to be made and allow social capital to grow, are just as important as roads, railways and broadband.

The government should prepare a social infrastructure index, looking at what is happening to social assets at the national and local level. At the very least, it will spark a debate about whether we are always cutting or investing in the right things. The much-touted planning reforms need to give due weight to creating spaces where people interact, get to know their neighbours and make new friends. In essence, we need to create spaces where ‘acts of kindness’ can take place.

If the replacement of EU funding is to be delivered by Local Enterprise Partnerships (LEPs), then at a minimum they must have decent representation from civil society, with guaranteed charity places on the boards. Better still to direct most money through councils (who are probably more interested in social infrastructure than LEPs) instead. It would also make sense for some to go through well organised local Community Foundations.

We have also argued – along the lines of the Charity Tax Commission – that the government should look hard at the idea of tax favoured Giving Zones or of making Gift Aid differentiated by geography.[5]

Data, data, data

Reforming our regulation, institutions and approach to social infrastructure is hugely important. But to really understand the impact of the sector, we need to massively increase the supply and use of data. Good decisions rest on understanding demand (need) and supply (funding, other charities), so we can concentrate finite resources on the better approaches. We don’t have sales figures, share prices and the like, but we do have other data: the trick is to make use of it.

“If we want to allocate funding in a more efficient way, we need data on its distribution.”

If we want to focus on where need is greatest, we need data on service demand. Good information can then influence where new organisations spring up and what they do, and how bigger charities direct their resources. This seemed a big ask a few years ago, but Covid has driven a new focus on data, including resources like our data dashboard.[6]

If we want to distribute charitable capacity in an optimal way, we need data to show us where service provision exists and where there are gaps. NPC’s work shows there tend to be fewer charities per head in more deprived areas,[7] arguably where they’re most needed. It’s an under-researched area though, and we need much better and faster access to Charity Commission data on registered charities. At a local level, we need to think about how we can keep a better handle on other civil society organisations that are not registered charities.

If we want to allocate funding in a more efficient way, we need data on its distribution. Greater transparency on where grants are going would help funders tailor their giving in a joined-up way and allow due diligence to be shared. We think the government should back the excellent 360Giving initiative,[8] potentially going as far as obligating grant makers to publish their giving data as a condition of tax breaks. In addition, the government should publish where its own grants go on the 360Giving platform as well as publishing open data about the number of contracts (and their value) going to the sector.

Finally, if we want to understand what support works, we need data on the impact of different interventions and services. Purists say you can only address this with top of the range scientific methodology, randomised control trials or RCTs. But this is expensive and often disproportionate to what is needed, and there is in any case usually not enough data available. There are however, reams of administrative data locked up within Whitehall departments that charities could use to understand their impact. The Justice Data Lab – developed by NPC and run now by the Ministry of Justice – gives us a functioning model for how this could work, and the government should build on this success by setting up Data Labs in other areas.[9] We need lots of good qualitative data too; not least because it often gets us closer to the issue of what is causing the good result. Bringing good qual work together is a vital task.

Unleashing the potential of civil society

Pulling together the themes discussed above, NPC proposes the creation of a Civil Society Improvement Agency.[10] This would be run by and for the sector, with a remit and resourcing distinct from existing regulators. The emphasis would be best practice, good governance, better use of data, and promoting greater collaboration among charities and funders. One of the main tasks would be mapping the infrastructural needs of the sector across different geographies and subject areas and promoting greater collaboration among charities and funders. It could, for example, establish common approaches to metrics, sharing knowledge and evaluation findings.

Of course, not all decisions should be decided on the basis of rationality. Passion remains the heart of the sector. Sometimes you are inspired by the founders, moved by the cause, and decide to take a risk. But we would have a better, more effective sector helping more people if we had more data and using it became normal.

Civil society will always be messy, a bit random, very variable, and at times deeply annoying. But it can be marvellous, uplifting and it helps makes our society a decent one. We don’t want to hem it in but with some of the suggestions here we could have a stronger and better civil society. And that is a cause worth dedicating oneself to.

Next essay

"An uncertain future: the need to better understand the potential of civil society"

All essays

Back to the full collection