Give us a tax break

The UK government is promoting a culture of giving but more is needed, argues C. Duncan Rice

On returning from the US in 1996 to become principal of the University of Aberdeen, I knew that the wealth of British universities relative to their North American competitors was modest. But I had not expected it to be quite so small. The first time I was told the size of Aberdeen's endowment funds, I assumed the figure mentioned was for income from endowment, not endowment capital.

The recent report by the Sutton Trust, which documents this transatlantic differential, makes it clear that if the endowment gap continues to grow, it will take its toll on academic quality in the UK relative to major US institutions.

Endowments - and the regular, reliable income they produce - give US universities the confidence and resources to undertake their work at the highest levels. Such revenue makes it possible to plan ahead, even assuming stockmarket fluctuations, rather than being cramped by the short-term funding cycles that afflict us in Britain.

My own university has an endowment of £22 million. The richest in Scotland stands at £160 million. The top ten institutions in the US each hold endowment funds of more than £2 billion. We would have to set the clock back to change this situation. In 1919, almost all of Aberdeen's funds came from private sources; by the late 1960s almost all from the state. As I write, the ratio is closer to 50:50.

There was a collective drawing of breath when, in 1996, I announced that Aberdeen was going to raise £150 million from philanthropic sources during my term as principal. Yet at the time my worry was that this target was woefully modest. I had recently been involved in a $1 billion (£640 million) campaign at New York University, which exceeded its target with some ease.

The Aberdeen campaign was scheduled to reach £40 million last year, and came in well ahead of that figure.

Fundraising is not cost-free. It requires serious front-end investment, involving trade-offs in other operating budget areas that only cultural change in the academy will make acceptable. Making endowments, moreover, is often unattractive to donors, who want to have an immediate splash for their money. While some of the £47 million we have raised has gone to endowment, most has been committed to special projects or spent for good operating causes - such as student support - that we could not have afforded out of our funding council grant.

Yet recent government changes in the tax code for charitable giving have helped. Since chancellor Gordon Brown's "Get Britain Giving" campaign, British tax laws are not really as uncompetitive with the US as we often think, particularly in the area of gifts of appreciated stocks and shares.

Along with David VandeLinde of Warwick University, another British vice-chancellor with senior US experience, I have been working with a group of colleagues to try to have the situation improved further.

Incentives are to some degree connected with the movement of the stock market. It would be helpful if we could follow the US model of transferring more of the incentive to make charitable gifts to the donor rather than to the institution receiving them, by imitating the idea that donors get all tax back on whatever sum they give to a registered charity.

Perhaps we would then begin to approach US performance, where close to 2 per cent of all income goes to charity. This means that nearly $200 billion goes on philanthropic purposes, about 14 per cent of that to educational charities. Perhaps one model the British tax authorities might explore is giving a modest additional incentive to taxpayers who choose to put gifts into endowment rather than current expenditure.

It would seem to be the perfect time for such a gesture: debate over the white paper has concentrated national attention on problems of funding universities; the government is clearly interested in tax incentives to promote giving; and there is the beginning of a change back to a culture in which giving seems normal.

My evidence for that is repeated press comment on private giving, interest in proactive funding in almost all universities, and - though I speak impressionistically - genuinely increased donor interest in supporting universities.

Our endowments will not approach parity with US universities in our lifetimes, but at least we seem to be on the right track.

C. Duncan Rice is principal and vice-chancellor, University of Aberdeen.