Should charities pay any tax?

How seriously should we take calls to scrap all taxes on charities? Should we do the same for businesses that do good? (Originally posted on Linked In)

When I see a senior person from charity finance arguing that charities should be exempt from all taxes I’m tempted to reach one of two conclusions: either the Chair of the Charity Tax Group, John Hemming, has forgotten what taxes (and charities) are for or he’s simply setting an Aunt Sally running to see how many salute it, if I may mix my metaphors.

Whilst mansplaining the first option I hope I can do justice to the intellectual challenge of the second.

People and companies pay tax in order to do good. Such ‘good’ comes from funding common action to address common social and other problems: a service to help us when we’re sick, to educate our children or to address poverty and social exclusion through the benefit system, for example. Whilst we can all agree that ‘the defence of the nation’ should be included we may disagree on how that’s best achieved. Meanwhile, no one can sensibly argue that we’re spending too much on social services or elderly care.

Taxation redistributes wealth and few would disagree that the richest should contribute more than those less able to (though to what extent is always good for a pub debate).

Charities enjoy several tax advantages in exchange for delivering ‘public benefit’. There’s controversy over what this means, especially where independent schools are involved. The comedian (and economist) Simon Evans recently drew attention to the absurdity of Gift Aid: the more you give to charity the more the state subsidises your giving – using money that might otherwise be used for ‘doing good’.

This slightly irrational position sees a shift of resources from organised, focused intervention at scale by the public sector and in the public interest towards chaotic, diversified investment in… lots of stuff, delivered by a host of myriad charities. Little wonder some senior people on the left are reported to be sceptical of charities as service providers – in any situation.

But not me. I think it’s right for charities to bring innovation, local expertise, caring values and alternative ways of delivering services into the public domain and right that Government partners with them in that delivery. Whilst charities should never be the vassals of government, should always have access to funding from independent sources too, professional partnerships between charities and the state frequently make great contributions to society.

I’m also in favour of businesses doing good, as I outline in my book ‘The Company Citizen’. Companies have a duty to behave responsibly in respect of community, stakeholders and the environment, and there’s a long term business case for them to be proactive in doing so. In fact, we need them to address climate change, food poverty, resource management on the international scale that only companies can.

Some argue that companies who do good should be rewarded with tax reductions; this idea should get very short shrift. After years of cuts in public spending we can see that we should not be spending taxpayers’ money in ways which aren’t focused on need. Companies that cut their carbon footprint will save money in the long term and gain a business advantage from doing so, they don’t need a tax cut to achieve that.

So we’re left with a rather uncomfortable feeling that maybe taxpayers shouldn’t be subsidising charities as much as they do, let alone singling them out for tax cuts. But charities aren’t companies and they can’t gain from ‘doing good’, which is a cost for them, not a net benefit.

Actually, other than Gift Aid and the VAT issue there’s no wholesale subsidy of charity operations, despite what recent commentators on various Oxfam issues have implied; most taxpayers’ money that goes to charities goes straight into services for those they help, often the poorest and most excluded members of society at home or abroad.

The best thing is to quietly park the ‘scrap the tax on charities’ agenda, Mr Hemming. I suggest you do so!

Creating Company Citizens

This article first appeared on the Tomorrow’s Company web site

‘Responsible business’ makes sense: there’s always something to be said for balancing your company’s needs against those of the environment and society in general. Why go against the grain?

This is the theme of my new book, ‘The Company Citizen‘.

For the CFO, there’s the knowledge that businesses which adopt more environmentally sustainable strategies produce more long term profit than those that don’t. The HR director knows that where employees are treated with dignity, and identify themselves with the meaningful mission or purpose of the company, then levels of engagement will be higher – which in turn enhances productivity. The procurement officer knows that legal and other codes of compliance are more readily accorded with when supply chains are open and transparent and the COO knows that ethical sourcing is a major contributor to removing unnecessary risk from their company’s portfolio.

When these four are happy so are the CEO and the Chair, who both know that the more they need to hide the less certain they can be about their future. Customers frequently show their appreciation of the honest, ethical, corruption-free approach by enhancing sales and market share.

Discussing his company’s newly-stated commitment to becoming globally zero carbon within a decade, a CEO recently told me: ‘This isn’t about climate change. It’s about long term thinking.’ How right he was. Putting climate to one side, carbon fuels can only become more rare, more expensive, more politically sensitive and their supply less reliable in the future; the same can’t be said for wind or sunshine, where technology costs are plummeting. A generational view puts the path of your company into perspective, puts budgeting for major projects in context and restores that business goal of years gone by: to leave a better company for the next generation than that which ours inherited.

In 1948 the United Nations came of age. It met in New York to discuss human rights, migration and other themes still redolent 70 years later. Today, if we brought together the 100 biggest economies of the world and charged them with resolving hunger, poverty and global warming only 58 would be countries – the rest would be companies. That shift in global power, recognised by the UN in the way it constructed its 2015 Sustainable Development Goals, suggests that combining global purposes with traditional business concepts of success is essential for our species’ survival; success must be tempered by a new level of responsibility. No longer confined to the optional extra of CSR, that responsibility could almost be described as epitomising the values of ‘company citizenship’.

Profit’s not a dirty word but it shouldn’t be the exclusive purpose of business. A true company citizen not only serves the market and the owners in a traditional way but pays tax willingly, with pride. The company citizen recognises that a business is a community in which employees, customers, investors and others have stakes which need to be in balance with each other. A good citizen’s a good neighbour, a community player and a friend to the environment 365 days a year, aware of both the positive and negative impacts that they have on others, seeking to accentuate the former whilst eliminating the latter.

The good news is that more and more businesses are finding ways to sustain themselves whilst maintaining the highest standards of ethics and probity, not least through the ‘new economies’ known as social, inclusive and circular. Business is increasingly looking to the longer term to reduce those negative impacts, especially on the environment.

When the day comes that it’s normal for companies to pay bonuses on the basis of carbon footprint reduction; boast in the media that they’ve eliminated slavery from their supply chain; go out of their way to limit top pay; take employees readily onto their boards; and abandon quarterly reporting, then we’ll know that we’re on the way to creating a society which includes company citizens and creates value for all.

Tom Levitt’s new book ‘The Company Citizen: Good for Business, Planet, Nation and Community’ is available now from Routledge.

Making an ‘Unreasonable Impact’

I published this article on Linked In in October 2017:

The world faces problems beside which our local issues look like small fare: food, energy and climate to name but three. We’ve always looked to governments working in collaboration to solve them – but where are the ideas that will drive those solutions?

Could we slash the cost of micro-solar power for cooking food and boiling water directly, saving millions in the developing world from the poison of kerosene fumes?

Why don’t we develop a network of dirigibles to act as phone masts, bringing state of the art 4G and 5G communications to every community in the world at a fraction of the cost of the current network?

What’s preventing us from growing healthy food within – and beneath – our cities on a commercial scale, utilising LED lighting and a fraction of the water of conventional agriculture, vastly reducing transport costs?

How about making edible cutlery from biodegradable rice and wheat, massively reducing the mountain of waste plastic, abolishing the transfer of toxins from that plastic into our food?

These are not only brilliant ideas but they’re commercial propositions; if you don’t believe that then ask the entrepreneurs who are putting them into practice, creating the sort of sustainable and inclusive economy that the world needs to survive. Ask the company that’s providing GPS services to allow farmers to optimise their agricultural output and minimise fertiliser use through their mobile phones. Ask the entrepreneur who’s turning industrial waste gases into ethanol. Ask the business that’s manufacturing tasty, high protein chips – from flour made from crickets.

All of the above were amongst 27 companies recently given a platform at the Barclays Unreasonable Impact event, aptly staged at the Royal Institution, the historic home of scientific innovation in London. They were not there to ask for money, though eager impact investors did make up a fair proportion of the audience, and nor were they talking about ideas alone. They were there to tell us about their businesses, companies already employing real people and benefiting, in some cases, millions if not billions of people – especially (but not exclusively) in developing countries.

Unreasonable Impact taught me that innovation, economic inclusion and reducing the cost of doing good are – and must be – part of the purpose of business. In fact, these are all roles that governments (and certainly governments alone) cannot deliver. Every one of the companies we saw – from slashing the price of 3D printing using waste plastic to making the circular economy real through the next generation of recycling – is viable, active and ambitious, motivated by making the world a better place. Scaling impact to create 200 million jobs worldwide suddenly looks possible.

So much about our world is depressing right now: did you know that climate change will halve the world’s supply of coffee in just twenty years? Unreasonable Impact was an optimistic breath of fresh air.

Which reminds me: another of the companies uses innovative technology to bring peerless, accurate, real time, local data on air quality to millions of their subscribers. A breath of fresh air, indeed.


The Problem with Morality 

The following thoughts were inspired by a discussion at a KPMG event ‘A New Vision of Value‘ in October 2014 (and an earlier KPMG / Tomorrow’s Company event on ‘Relational Capitalism‘ a year earlier). It seemed to me that too much emphasis was being put on morality as a driver for good corporate behaviour when compared to the business case. 

There appears to be a (wholly unnecessary) split in the corporate responsibility community as to whether business engagement in the community should be driven by morality or a business case. Whilst the ‘business case’ may be deemed cold and calculating, even portrayed as self-serving, I believe that morality alone is an inadequate guide to action.

Let me explain why.

If ‘business case’ means ‘driven by what works’ and ‘morality’ is ‘driven by what’s right’ then of course morality should underpin any corporate community engagement, as indeed it should guide all business decisions (payday lenders and massive tax avoiders please note). But if morality alone was sufficient to be the engine for a greater positive engagement of corporates with communities, charities and causes, then surely it would have generated a greater impact by now? Morality doesn’t change that much over a lifetime, after all.

But morality is a state of mind, not a programme – nor necessarily an incentive – for action. It answers the question ‘why’ social action is right but not that of ‘what’ or ‘how’. By basing such decisions on morality alone we are in danger of saying ‘Everything our business does is guided by a business case – except social action’. Which is odd.

Perhaps the problem is our definition of ‘business case’. To me the phrase does not mean ‘the best way to maximise profit’ or any Friedmanite assumption that the business of business is isolated from the world or the community around it. Social action backed by a business case would:

  • deploy company resources in a manner which discharges the duties of a corporate citizen
  • engage, inform and motivate employees
  • deliver a positive, desirable and observable social outcome over a period of time
  • contribute to the sustainability of the business as a whole.

Social action may generate a programme which enhances employees’ skills, stimulates innovation and boosts corporate reputation; business outcomes well worth having.

None of these are in conflict with a morally-framed approach but nor are they necessarily included in it – and to exclude any of these three reasons is to miss potentially significant opportunities. A creed which says that morality alone should guide corporate social action reminds me of the old Puritan idea that profiting from doing good is inevitably wrong.

Let us consider a real case. For the past three years Boots has enjoyed a partnership with Macmillan, the cancer charity, aiming to improve cancer patients’ access to support and services in the community at no charge. This was undoubtedly a morally sound case, for which there is a great need. A second three year phase has recently been agreed.

Over that first period Macmillan trained Boots’ staff to identify and refer cancer patients and their families while Boots supported the charity in a number of ways, not least through fundraising, advertising and co-branding. The chemist became the first choice ‘go to’ pharmacy for cancer patients whilst the profile of the charity was significantly raised. Together the moral case and the business case both work.

In three years’ time the moral case for continuing this relationship will be just as strong as it was three years ago – but the business case will be less persuasive. The ‘go to’ reputation for both chemist and charity will have been embedded, deservedly, but the beneficiary flow will be subject to the law of diminishing returns. The social impact of continuing to invest time, money and resources into exactly the same ongoing project will be diminished. Morally, the relationship should continue from then on – but, from a business case perspective, if it does so then it must change.

In short, every input should lead to one or more outcomes. The moral case says that inputs and outcomes must be morally sound (and preferably untainted by any business benefit?) but the business case says that the inputs should be calculated to produce the maximum, sustainable, beneficial outcomes without compromising the business itself in an unacceptable manner.

In 2007 all four giant American motor manufacturers had well established CSR programmes – as is the norm in the US. In the absence of evidence to the contrary, let us assume that all delivered a cost effective set of outcomes which were morally sound and, at least in part, helped the company discharge its duties as a corporate citizen.

But the moral justification was not strong enough to prevent three of those companies abandoning their CSR programmes in a cost-cutting measure in the face of the global recession. There is no reason to believe that Ford is any more of a moral company than the others but Ford retained its CSR programme and, despite a reduced budget overall, its employee volunteering rose by half in just three years. This, they argued, was supported by the business case. In the light of thousands of job losses something had to be done to improve the morale of remaining staff and this was to add ‘social purpose’ to their reasons for coming to work. Much of the CSR output was focused in countries with developing markets, enhancing Ford’s reputation in advance of the expected upturn in world markets, and the company makes no apology for deliberately focusing a proportion of its social spending on branded activity. Today, Ford is widely held to be benefiting from one of the most highly engaged workforces in the corporate world. An engaged workforce is more loyal, productive and healthy (with fewer days lost due to sickness) than one that is not.

Of course there is a moral justification for much of Ford’s community-based activity but the motivator is a complex and multifaceted business case: doing good and doing good business are combined.

A particular area of interest is the role of the SME as a corporate citizen. Research shows that SMEs generally do not recognise CSR as relevant to them although they do believe it is right to expect business to engage with the local community. Perhaps this is a moral position although few SMEs (outside the relatively recent growth area of social enterprise) would claim to have a mission, let alone a statement of values, which guides their path or informs their business decisions. Where they do engage with community organisations that relationship is informal, reactive rather than proactive, often short-term and usually superficial.

But in rare cases where strategic engagement with a civil society partner has been embarked upon the mutual benefits to business and community can be profound. For example, a steel stockholder described to me the after-effects of a serendipitous giving of goods and volunteer time to a local nursery as ‘changing my company, giving employees a greater purpose in coming to work’. A storage company owner, who engaged a serving prisoner on work experience through a local charity, told me that the process ‘opened my eyes’ and that ‘I will definitely invite former prisoners via the charity for future recruitment purposes’.

Most small businesses engage with charities, voluntary organisations and schools on a one-off basis, perhaps when a request for a gift of cash or kind triggers a spike of moral conscience. For them to engage with communities strategically, sustainably, requires business planning – and a business case. Small businesses often claim they do not have the time or money to think about the morality of their business or engage strategically with the community; but those who have passed through this barrier are generally convinced by the arguments for doing just that. Old-fashioned proprietorial views – ‘the purpose of my business is the survival of me and my family, now and in retirement’ – still pervade even though self-interest is not generally regarded as the peak of moral purpose.

In conclusion, I share the wishes of those who want to see morality play a greater role in the business world and I praise to the rafters those believers who practice what they preach. But the tools they use are business tools whose deployment requires a business justification – which means a business case.

Admittedly, too much CSR today is supported by self-centred business arguments which focus on, for example, employee engagement with the company rather than with the community. But this need not be the case.

The fact that morally sound behaviour by companies can be supported by a business case is something we should be celebrating, not segregating. Business has a huge amount to offer to society globally and the fact that morality alone has so far failed to release significant resources for this purpose is a matter of regret.

In the best of all possible worlds corporate behaviour, both the essence of corporate citizenship and the ethos of good business, would be backed by both moral/ethical and business arguments. Ultimately both are both necessary and justifiable.

Roll on the day!


In reply, Vincent Neate – Head of Sustainability at KPMG – wrote:

I enjoyed the paper and basically think I agree with you.  I think I might go further though in two directions – one by asserting that there is no possibility of an amoral human act and second that the existence of morality is not the same as the existence of moral obligation. 

In this context the choice Boots made in respect of Macmillan was both morally good and one where the only obligation driving it was the obligation to make commercial sense.  If it had not made commercial sense there would have been no moral obligation – such that if in three years it no longer makes commercial sense there will not be a moral obligation then.

The key question I think this is raising is whether or not any obligations ever exist other than contractually – whether the contract is explicit (e.g. with the shareholder to “make commercial sense”) or implicit (e.g. with the cancer patient to give them best possible advice).  I would argue not – Boots creates the latter contract by claiming to be a health focused pharmacy rather than a money focused pharmacy and the partnership with Macmillan is just the mechanism for executing in a way that makes commercial sense on a contract they have already implicitly created.