UK charitable foundations with collective assets of more than £12bn are giving away only a small fraction to good causes each year, according to a think-tank analysis.
Hundreds of grant-making trusts and foundations (GMTFs), including the Eranda Rothschild and Mikhail Khodorkovsky foundations, were identified in the research by Pro Bono Economics shared exclusively with the Financial Times.
The analysis showed that if GMTFs distributed 3 per cent or more of their assets, this would generate at least an additional £300mn a year for good causes.
“A huge amount of money lies unused and the mechanisms do not exist to encourage foundations hoarding cash to deliver it to the causes that need it,” said Nicole Sykes, director of policy at PBE, which was co-founded by former Bank of England economist Andy Haldane.
The government and the Charity Commission, the sector regulator, have long faced pressure to introduce a minimum annual distribution rate for charitable foundations.
Countries such as the US, Canada and Australia require charities to give out 5 per cent of their assets each year whereas the UK has no mandatory target.
The analysis looked at the income and assets of the largest 300 foundations in the UK, according to the Association of Charitable Foundations, a membership group for foundations and independent grant makers.
It estimated that collectively this group held investments worth more than £87bn in 2020-21. The foundations that gave away least collectively had assets of £10.2bn in 2020 yet spent just £95mn, PBE said.
Between 2018-2020, the “least generous” foundations held an average of £12.2bn in assets and distributed just £131mn.
The research comes as the cost of living crisis forces households to turn to charities to fill the gaps in local services, from food banks to mental health and counselling services.
The Charity Commission said: “Many of the country’s wealthiest individuals give through foundations, and we have called on those with the deepest pockets to do more as households face their own financial pressures and increasing numbers are turning to charities for support.”
The charitable sector has so far resisted calls for reform of rules around distribution. A Department for Culture, Media and Sport spokesperson said there were currently “no plans to introduce capital spending requirements” on foundations.
Carol Mack, chief executive of ACF, suggested that “introducing a minimum payout ratio to the UK is a really bad idea in the UK context”.
“It is more likely to act as a ceiling than a floor, because foundations would be reluctant to spend over and above the minimum amount without the assurance that they can rein in spending in future years if needed,” she said.
The research included high-profile trusts including the Eranda Rothschild Foundation, which focuses on expanding opportunities in education and the arts.
In 2021-22 it held assets worth £144mn and awarded grants worth £738,000 — 0.5 per cent of its assets. The foundation was set up in 1967 by Sir Evelyn de Rothschild, who died in November 2022.
“In the years immediately preceding his sad passing given the global pandemic and his age there were understandably fewer trustee meetings than usual,” a spokesperson for the foundation said.
“This resulted in less grantmaking than the historic average. The trustees expect the level of grants to rise looking forward,” the person added.
The report also highlighted the Khodorkovsky Foundation, which was established in 2003 by its trustees at the instigation of Mikhail Khodorkovsky, a Russian oil tycoon and one of Vladimir Putin’s most prominent opponents. The charity awarded £15mn worth of grant funding in 2022 while it held assets worth £564mn.
Alastair Tulloch, a Khodorkovsky trustee, said its grant-giving activities had been impaired by the Russian government’s designation of the foundation as an “undesirable organisation” in July 2021.
He said this had resulted in the project’s activities in Russia being halted “for an indefinite period” and the trustees “having to refocus the foundation’s grant-giving activities outside of Russia until the foundation’s activities in Russia can be resumed”.
In 2016, Labour peer Lord Jeff Rooker, a former member of the House of Lords committee on charities, suggested charitable trusts should be mandated to give at least 1.5 per cent to good causes each year. But the proposal was flatly rejected by the ACF.
The body argued: “Such an attack on the independence of trustees to decide how best to use their resources neglects the importance of individual charitable mission, attitude to longevity and market context.”
Charles Keidan, executive editor of Alliance magazine, which covers the philanthropy sector, estimated that an annual spending requirement of 5 per cent of a charity’s assets would unlock a total of £1.3bn for good causes in the UK.
“There’s a natural conservatism in the UK towards compelling foundations to give, but in the absence of compulsion it’s very unlikely that incentives or encouragement will significantly shift the level of giving,” he said.
Wellcome Trust, Britain’s largest biomedical charity, was not included in the analysis due to its size, which would distort the data set.
The Becht Family Charitable Trust, which supports marine biodiversity and climate change projects, is the 25th-largest foundation in the UK. It had assets worth $536mn in 2021. In the same year, the trust awarded grants of just $8.8mn.
According to the analysis, it spent $1mn a year on managing its investments, which generated $3.8mn in income and capital appreciation of $73mn.
A spokesperson for the Becht Family Charitable Trust said the foundation had net asset values of $440mn in 2022 and total grants of $9.4mn In 2022, and grants had increased to 2.1 per cent of net assets, compared with 1.6 per cent in the previous year.
They added that the foundation had conducted an in-depth strategic review in 2019 that resulted in it moving towards the “marine biodiversity and climate change communications space”.
As more opportunities to support organisations become available, “we have and will steadily expand our donations to back them”, they said.
The research found that more than 100 charitable foundations that have existed for five years or more failed to distribute more than 2 per cent of their assets between 2016 to 2021.
The Kusuma Trust UK, which allocates grants to organisations and people “making a positive difference to society”, had assets worth £510mn in 2021. It spent £5mn in the same year, £3mn of which went towards running the charity, with £2mn allocated in grants.
It donated £5,000 to the British Library to run a Paddington family day. The Trust declined to comment.
“The trustees of grant-making charitable trusts and foundations are best placed to determine strategies that will best deliver on their charity’s purposes both now and in the future,” a government spokesperson said.
“There are existing rules that prevent charities from accumulating income over time without good reason, however there are no plans to introduce capital spending requirements.”
