Limiting admin costs – should grant-makers be forced to tighten their belts?

The endless obsession with admin costs never seems far from debates about whether charities are doing their job properly. But in a twist to normal proceedings, and as we reported on this blog a few weeks ago, it is a grant-maker that has become the focus of scrutiny.

To recap, the new culture secretary has told the Big Lottery Fund – the largest grant-maker in the UK – that it must cut its administrative costs to 5%. It currently spends around 8%, a statistic previously labelled by the minister as ‘grotesque’.

To a casual observer it might seem fair that the Lottery shouldn’t be immune to the belt-tightening going on elsewhere. But the scale of cost-cutting proposed seems likely to fundamentally transform what the grant-maker is able to do. I can think of three possible implications.

• More big grants, fewer small grants. The most expensive grant schemes to administer are those that give out small amounts. If you think of the paper work and background research needed, it is far cheaper to give out three £50,000 grants than fifty £3,000 cheques. I would hazard a guess that the Lottery’s most expensive programme is ‘Awards for All’, which gives tiny grants to charities, schools, community centres, and youth clubs. Has it had its day?
• Fewer new grant programmes. New programmes cost money to establish, research and promote. It is far easier to keep existing programmes going for longer. Over the years, once-obscure causes such as children’s play and out of school hours clubs have greatly benefited from Lottery investment. Is this era over?
• Less evaluation and research. Evaluation is a substantial part of the administrative budget of the Lottery. Although it is a crucial part of the process of learning and improvement, it doesn’t help with ‘getting money out of the door’ so is likely to be vulnerable.

None of the above strikes me as a positive thing. I’m sure the intention is right but the 5% benchmark (a number that has been picked out of the air?) could end up impairing the Lottery’s ability to do good and shows a misunderstanding of how grant-making works.

It is always a surprise to those outside the charitable sector that it isn’t easy or cheap to give money away. I’m all for more efficient grant-making but surely this begins with understanding how any reduction in administrative costs affects the Lottery’s vital role in supporting our most vulnerable communities?

I’m afraid that a simple focus on admin costs is wildly off the mark.