Yesterday brought the very sad and alarming news that Kids Company had closed, due to lack of funding. It appears that the last straw was when a private philanthropist who withdrew a £3m donation on hearing that there was an investigation into alleged criminal activity on the charity premises – allegations that appeared in the media before the Charity were aware of them. Note the allegations are as yet unfounded.

I have had personal experience of a charity failing. After working for The Grasslands Trust for nearly six years I left shortly before it went under: I could see the writing on the wall and left shortly before it did. In simple terms the reason it went under was because the money went out, and not enough came back in. To be honest TGT had led a hand to mouth existence for much of its short life. The recession that hit in late 2007 (and in many ways continues to this day) had a very profound impact on the income of charities large and small. TGT relied for unrestricted income on Grant Making Trusts (GMTs).

GMTs have a pot of money which they invest. They then give away the investment income to good causes (usually charities), leaving the capital untouched. They are mostly charities themselves, with Trustees. Occasionally the Trustees of a GMT will decide to wind up the GMT and will give away the capital and the investment income. Some GMTs are huge and provide millions every year (Esmee Fairbairn Foundation are particularly generous to environmental charities and funded my post at TGT). Others have smallish endowments and give away a few thousand each year.  One figure suggests that around 4500 GMTs provide £3Bn a year to charities and other good causes. Another suggests 7500 provide £2Bn a year.

When the recession hit (a recession caused, as you will remember, because banks decided to create lots of new money which they then lost in gambling), the return on investments went down dramatically  – for a number of reasons. GMTs as charities are required to invest their money carefully – anything invested in a bank suffered when the interest rate dived down to near enough zero. Investments in stocks took a major hit when the stock markets crashed. The main beneficiaries of the global recession were the Hedge Funds, but their risky investment strategies would most likely have prevented charities from investing with them.

Since 2010 and the cuts to public expenditure, charities have seen their income from Government and Local Government grants fall. The only source of income for charities that has held up has been individual giving. Despite the recession, individual donations are still large – last year nearly £11Bn was donated by individuals to charities. But during the recession individual giving declined by 10% and has still not recovered to pre-recession levels.

Charities continue to face hard times though. And yesterday’s closure of Kids Company has to be seen in this context. There may well turn out to have been problems with the Charity’s management and governance. It certainly sounds like an organisation that has been on the edge of chaos for a long time. But then many charities are in that position, and it does not mean that they are failing to deliver public benefit.

Charities have to deliver public benefit, that is what they are there for. The Charity Commission has gone to quite a lot of effort to define what Public Benefit is and what it is not. You can read their guidance here.

I don’t think many would question whether Kids Company was providing public benefit. The Charity Commission, who is the regulator for charities and decides whether charities are delivering public benefit or not, clearly felt that KC was providing public benefit, by supporting vulnerable children who needed help, which they were not getting from anywhere else. It could be argued that if Government or local communities or businesses had been providing that support, then Kids Company wouldn’t need to have existed. But that is the case for the entire voluntary sector. It exists precisely because individuals, organisations of the state and businesses cannot provide all the needs of society.

Perhaps as a definition that sounds unduly negative, as if the voluntary sector only exists to fill a hole left by other entities. Better then to call it Civil Society and see it as an essential part of society, which provides support for those that need it, but also leads the way, has a vision for a better society, develops new ways of doing things which mean people have a better quality of life (in all its senses).

If the Kids Company saga shows up anything useful, it is that the Government doesn’t really know what it wants from Civil Society. On the one hand it wants organisations like Kids Company to step in and take on a role that arguably the State should provide, supporting vulnerable children. For this, very much a contractual arrangement, KC received £4m last year, about 20% of its funding.

On the other hand Government does not want to hear Charities criticising Government policy – something KC founder Camilla Batmanghelidjh was very good at doing. Witness the moves to stifle Charity lobbying via the Gagging Clause, or shut down comment or criticism by Charities in receipt of Government funding (the sock puppet issue.) But if Civil Society is to be the engine of innovation (David Cameron’s vaunted Big Society), developing new approaches to tackling Societ’s problems, how will it effectively advocate those solutions to the very people who need to listen to them, if they are gagged or muzzled?

It would be paranoid to think there’s a concerted campaign within Government to reduce the influence of Civil Society – but there are signals of an increased animosity. Former Charity Commissioner Andrew Purkis keeps watch on CC chair William Shawcross and notes Shawcross is sending increasingly antipathetic and strident signals about Charity work, especially Charity campaigning and advocacy  – hardly the neutral, cautious stance expected from the chair of a Regulator. The enthusiasm with which the right wing press and commentariat have put the boot in to Kids Company is another example of this animosity. One such commentator Conservative Home editor Mark Wallace yesterday suggested that Kids Company deserved to go under because they had broken the terms of the contract with the Cabinet Office on their latest payment, regardless of the consequences. While that may have some logic to it, if every organisation that bent the rules on grants they received were treated so draconially (is that a word?), there would be pandemonium.

And it’s salutary to consider what Society gets from Civil Society for the public expenditure it receives. Latest figures indicate that Civil Society had a total income of around £40Bn in 2012/13. Of this Local Government provided £6.8Bn while Central Government provided £5.8Bn. Tellingly £11.1Bn or 85% of Government funding was in the form of contracts, not grants. And Government support for Civil Society is shrinking – £1.7Bn down from 2010/11 to 12/13. No doubt the fall since then will have been even steeper.

Compare this with the £93 Billion a year Corporate Welfare support system. That’s right, taxpayers help out profit-making businesses to the tune of £3500 a year per household in hand-outs of various types; corporate hand-outs which characterised the Chancellor’s latest budget. And that £93Bn is a conservative estimate. It doesnt include, for example , the bank bailout which will end up costing taxpayers billions once the final figures are in.

While individuals gave £10.6Bn to charities last year, the Government took taxpayers money and gave 9 times as much to businesses. For what? What public benefit do businesses contribute to Society? Businesses are created to make profit for their owners – that might be individuals, or it might be shareholders. Creating profit in and of itself is not a public benefit. The Charity Commission are very clear on that point.

So it seems the Government is a bit confused about what it thinks Civil Society is for: is it a cheap semi-private form of contract provision for things the real private sector won’t touch (because there is no profit there)? Is it a place where innovation is created to help Society develop and improve people’s quality of life? Is it a source of embarrassment, full of “mesmerising” people who are actually dangerous extremists? Perhaps Civil Society itself needs to start vigorously promoting what it believes itself to be and what it is for.