> Miller’s True and Fair Foundation argues (pdf) that charities should spend a minimum 65% of their total income on charitable activity. Any charity spending less than that, it says, “must by definition be one or more of poorly governed, unethical or appallingly mismanaged” (pdf). One in five larger charities is said by the foundation to spend less than 50%.
> The foundation has simply taken a charity’s total income and contrasted it with charitable expenditure. But, the total income for many large charities includes the costs of trading (eg running a charity shop) – money which could never be spent on the end cause, but helps generate additional funds for it. Like any business, part of the charity’s income goes to cover these costs, before a profit is made which can go directly to the charity’s cause.
> For example, a charity may spend £30 running a charity shop. It makes £40 on the till, so therefore makes a £10 profit which goes to the end cause, along with the initial £10 donation.
> In doing all this, its total income is recorded as £50 – the £10 donation, plus the £40 from trading. The £20 it has to spend on its cause is 40% of this £50.