Is there any value in imposing annual payouts?

Cathy Pharoah

A recent headline-grabbing speech claimed British foundations should raise their spending through being compelled to spend a mandatory proportion of annual capital assets[1].The claim suggested that foundations are ‘warehousing’ assets that could be put to public use today. This call was disappointing, not least because the positive value of what foundations contribute to so many public spheres is less often heard. The speech was lacking in any evidence that a mandatory spending formula would increase foundation spending or make it more effective.

Beximco pharma warehouse. Assets for distribution?

Policy speculation needs to be reined in, at least until there is more evidence. Together with colleagues, I have been analysing figures based on financial data compiled for the recent Foundation Giving Trends 2016 [2].  Our provisional analysis shows that there is no discernible evidence of any potential benefit from imposing spending rules[3].  Rather such rules might also put at risk foundations’ ability to make larger or one-off investments.

The obvious starting point for this research was to apply the well-established US mandatory distribution figure of 5 per cent of the value of the foundation’s endowment to published UK accounts data. However, important ‘health warnings’ are necessary. Results can only be notional, because the '5 per cent' calculation in the US is an actual audited (or auditable) figure, while research calculations based on published data are somewhat ‘rough and ready’. The asset values used, for example, represent a single annual snapshot taken from UK annual reports, and not management accounts figures, with their monthly and quarterly fluctuations. They may also include some assets not used for directly charitable purposes. Other issues include variations between the US and UK in accounting practice and a lack of detailed UK spending data.

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