The issue of mandatory payout for UK foundations is re-emerging as a hot topic of debate. The suggestion of enforcing a blanket minimum payout (generally drawing from North American models and arbitrarily taking 5 per cent as the norm) is widely rejected by British foundations. The motivations behind this rejection are too often poorly understood and proponents of mandatory payout sometimes retreat into rather crude analysis.
Jake Hayman, for example, speaks darkly of tax avoidance and forces of conservatism. In an Alliance podcast, he caricatured foundations as ‘invested in porn, arms, tobacco… making annual donations to private schools’. Of course, every sector needs provocateurs. The challenge comes if shriller voices prevail and legislation is introduced that actively damages philanthropy.
Some fundamental points are often misconstrued in debates about payouts. Most of all, it’s worth re-stating that there is no tax incentive to maintain an endowment once a foundation has been established. In addition, foundation endowments are not passive treasure chests to be raided at whim. The careful stewardship of a foundation’s endowment is the goose that keeps laying the golden egg.
Let me take The Wolfson Foundation as an example. Working with our Investment Committee we set an investment target of inflation plus 4 per cent. By any investment standard, this is an exacting long-term target for a medium-risk portfolio. Spending anything above 4 per cent of our endowment makes little sense if we anticipate being around for the long term.