The role of charities in society is never going to feature top of any party election manifesto. The Conservatives were fumbling toward something in the 2010 general election with the Big Society.

However, as the long run in to the 2015 election starts the position of charities and other not-for-private-profit organisations might begin to move a little closer to the limelight.

It is uncontroversial to note that whatever political flavour the next government has, some trends are likely to continue. In particular, we may in retrospect see the 1990s and 2000s as the high-water mark of state involvement. The rate and extent of continued austerity is not for comment here. But how the space is filled where the state pulls back and what the state’s relationship with the entities occupying that space is of interest.

Charities have set purposes – their “objects” set out in their governing documents and are available for all to see on the Charity Commission website. Fulfillment of those objects is often achieved in a number of different ways. One of the factors which is likely to influence how charities operate and meet those objects is an assessment of where their income my best come from.

With social and economic change will come change as to how charities operate. Many have, in the recent past, operated by contracting to deliver services funded, to a large extent, by public money. A number of organisations we have advised in the recent past operating this way have faced difficulties where their public funding has been cut or, in some cases, stopped altogether. Others have sought funding direct from the public. However, there is perhaps a natural limit on the extent to which the population will be willing to participate in sponsored activities or tolerate “chugging”. In the economic environment of the past half dozen years charity shops have also flourished.

The difficulty charities have, though, is public expectation and perception of them. All the above have their detractors who see those activities as being ones which charities should not be involved in. Added to this, in an age of increased scrutiny is the requirement to be transparent. Charities appear to be having quite a torrid time – with the above income issues, criticism of chief executive (and other employees’) salaries and an underfunded yet peculiarly difficult regulator and a public which, if not actually hostile, is certainly much more sceptical than it used to be.

Where does that leave us? Two interesting developments, which will play out over the next few years, are: 1 Charities will look to other sources to fund their operations. An area which a number are already using and others are beginning to look at is the use of borrowing to fund capital projects. This funding might come from institutional borrowing or from private investors. We have been involved with advising a number of clients who have put together funding through a private bond issues.

2 The use of separate legal entities to carry out activities on a more entrepreneurial basis. These new entities might either be formally linked or associated with charities or may be entirely new organisations. These might often style themselves “social enterprises” and have much greater freedom to operate and in a more entrepreneurial fashion. We have advised both new start-ups and pre-existing charities seeking to operate this way. Opportunities to fund such organisations may come in a variety of ways either through borrowing (as above) or by share issues. Alongside this it is worth noting a new social enterprise tax relief is to be introduced later this year for private investors wishing to seek out a social as well as an investment return. This relief is expected to be along similar lines to those currently available in the form of EIS or VCT relief.

The tension will come between the desire for politicians to encourage the entrepreneurial spirit of these organisations to carry out activities which have, certainly for a couple of generations, been thought to be the sole preserve of the state with the – quite understandable – wish for them to regulate to ensure the services delivered are fairly and affordably delivered.

• If you wish to discuss this article further, please contact Duncan Milwain, who is a director and head of our Charities and Social Enterprises Group on 01904 611411 or Duncan.milwain@lf-dt.com