Profile: Nick Kavanagh, FD of Save the Children

Most politicians seem to have ‘answer avoidance’ down to a fine art. So when
Gordon Brown was asked to explain why more hadn’t been done to tackle the £500m of irrecoverable tax that UK charities pay each year, Nick Kavanagh wasn’t hopeful of a full answer. But even he wasn’t prepared for the admission that nothing had been done because it is too complicated.

Kavanagh, the finance director of Save the Children, is broadly supportive of a government that he says has put a lot of time and effort into promoting and simplifying tax-effective donations, such as payroll giving and gift aid, as a way of encouraging more charitable giving in the UK.

The amounts generated by payroll giving rose to £83m for the 2004/05 financial year, plus £12m in employer’s contributions, according to the Charities Aid Foundation.

‘Where the government has lost brownie points is in its blatant refusal to do anything about irrecoverable VAT,’ says Kavanagh. ‘The way VAT interacts with charities means it’s more complex for them to administer than for any other sector. There’s no bit of VAT law that says this is how it applies to you.’

In the end, the complexity of the system forced Kavanagh to go back to school to supplement his accountancy training. ‘I did the Institute of Indirect Taxation exams
so I could understand the context and application of how VAT hits charities. That’s sad. I’d much rather be focusing effort and resources on the strategic things that are affecting the charity.’

Devoting your evenings to the intricacies of the UK’s tax system isn’t everyone’s idea of fun. But it does illustrate the lengths to which Kavanagh will go to rectify what he and many others see as a major flaw in the system.

Wearing his other hat, that of chairman of the Charity Tax Reform Group, Kavanagh isn’t afraid to stick his neck out on this issue. The lobby group has 400 members, including Cancer Research UK, Amnesty International and the National Trust, who are united in their concern about irrecoverable VAT.

Like Kavanagh, the CTRG believes actions speak louder than words. It helps to develop tax-effective giving structures, and spends a great deal of time lobbying MPs and MEPs. Currently the minister on the receiving end of most of its correspondence is John Healey, someone Kavanagh describes as ‘good on listening, but short on delivery’.

‘The government asked us to come up with ideas to tackle irrecoverable VAT within the current legislation. We came up with three really good ideas. None would have totally got rid of the problem, but at least they would have reduced some complexity and provided some financial respite. But they were ignored as far as the Budget was concerned. And now the VAT gets worse almost every week. It’s a nightmare, especially for smaller charities.’

Fortunately, the lobbying hasn’t been a complete waste of time. It has resulted in
tax relief in other areas, which has helped the charity sector. ‘It means we’re keeping our eyes on legislation. There was an attempt at a European level to introduce VAT on donated goods sold through charity shops.

It would have tripled our VAT bill. Hundreds of charity shop volunteers wrote to the
MEPs in protest.’

But Kavanagh is adamant that Brown’s claim that the area is too complicated is a poor excuse. ‘There are already rebate schemes, for listed places of worship, for example. They aren’t complicated and could be equally applied to the whole charity sector. Rather than waste time negotiating refund rates, a partial or total refund mechanism is the best way forward.’

Despite some minor victories, Kavanagh admits it has got to the stage where he feels he’s banging his head against a brick wall. ‘There are days when I think I should throw in the towel. Then I ask myself: “Should £1m go back to the government or should it go towards our work for children?”’

Fortunately, not every aspect of Nick Kavanagh’s job is quite so fr ustrating. In the last year, he’s been spending a lot of time reviewing the charity’s investment policy as Save The Children looks to underpin it with more socially responsible funds.

‘There are a lot of investment managers who claim to know about socially responsible investments, but most of them take your instructions on what’s called negative screening. So in our case, if funds aren’t in the interests of children, they’re excluded from our investment portfolio. But at the end of the day, it’s also about to what extent they work with companies to improve their social responsibility.’

In the end, Save the Children went with Newton Investment Management and the Epworth Affirmative Fund. ‘They know more than any investment managers about how SRI works. It’s not true that you have to lose money or get less return by following an SRI policy.’

It doesn’t take long to realise that Kavanagh, despite his gentle, soft-spoken exterior, is intent on making a difference. It’s no coincidence that he is one of a group leading Save the Children through a major change programme ­ a long-term positioning exercise and decentralisation project that will see employee headcount at the charity reduced by about 100 over the coming months.

‘We need to focus on who we’re targeting. We have clarity about how we want to focus ­ health, education, food and the effects of malnutrition, and the right to protection. Now we’re embarking upon a programme to devolve more accountability and authority to different levels. By November, the size of the finance department will have shrunk by half. They’ll be out there supporting the front line. It will be a huge change.’

There will be cost savings, Kavanagh says: ‘But the driver was making us more
fit for purpose in terms of who people report to. It’s a huge deal for staff and the organisation, but we’ve done this in the right order and based it on what we need to do to have most impact.’

For someone so driven in his ambitions for the charity, it’s surprising to hear how he fell into the job. ‘I’m not a particularly ambitious person,’ he admits. ‘I sort of stumbled into accountancy and it wasn’t something I felt particularly excited about.’
After university, Kavanagh trained as a chartered accountant at a small firm, but admits that doing a job focused on boosting profits for the corporate world did little to inspire him. He was already working as a volunteer in a local Oxfam shop when he decided to take the plunge with a full-time job in the third sector.

‘I joined Oxfam as an internal auditor then after two and a half years I worked for VSO in Tansania, running courses in accountancy, bookkeeping and management skills. I had to teach all of this in Swahili, because their English wasn’t so good.’

Having picked up a few choice bits of vocabulary (‘urari’ is Swahili for trial balance), it was time for Kavanagh to move on. He initially joined Save the Children eight years ago as a marketing accountant.

‘I provided financial, tax and management information for all our fundraising and funding operations. Then along the way, I was either acting up or seconded into the FD role ­ twice when the previous FD was on maternity leave, and most recently when she moved into the marketing director’s role. I’d been acting up for so long, people said it was time for me to do the job properly,’ Kavanagh says.

The role of the charity accountant has evolved hugely over that time as supporters expect more feedback on the fate of their coins after they have hit the bottom of the collecting tin.

‘We’ve had to become more supporter focused. Today there’s much more of a requirement for information, and that requires good reporting. So at Save the Children, if people have funded specific bits of work, we update them on what has happened.’

On the whole, Kavanagh welcomes the change. ‘The quest for transparency and good communications is good, and allowing donors to ask questions has to be right,’ he says. ‘But it can be problematic if a charity needs a specific support infrastructure. Nothing’s free ­ it’s a case of getting the right balance.’

Other aspects of charity life, meanwhile, remain all-too familiar. Collecting donations continues to be an uphill struggle. The biggest money spinner for Save the Children is its annual awards ceremony in the City, attended by patron Princess Anne. ‘In 20 minutes it raises upwards of £1m. This year it raised over £2m. But a lot of fundraising is a hard slog.’

Fortunately Kavanagh’s belief in Save the Children’s goals has helped to make the last eight years a hugely rewarding experience. ‘All children have a right to a decent education, basic health services and a right to be protected. I feel quite humble to be part of an organisation that fights for the rights of children to create a better world for them.’

The future of the charity sector may involve taking a few pointers from the business world, but Kavanagh can’t see himself moving back to a job outside the not-for-profit sector.

‘It’s not about being more commercial, but we have got to be ­ and we are being ­ more professional in the way we do things. Our approach to procurement efficiency and risk management needs to be more like a commercial organisation.’

The boundaries may be blurring, but making the career transition to a charity should not be underestimated. ‘It can be an immense culture shock,’ Kavanagh admits. ‘There’s no formula. It’s about commitment, but it’s also about having a lot to offer.’

Stop the war on children
The prohibitive cost of schooling is forcing many young girls in developing countries to engage in sex work to fund it.

Save the Children research released on Monday to coincide with the first day of a new term found that in conflict areas, girls who cannot afford to go to school are more likely to join armed groups.

Around the world, thereare up to 120,000 girls, someas young as eight, who have been forced to become frontline fighters or support armed groups.

Disarmament, demobilisation and reintegration is the international community's current means of trying to ensure combatants are released from armed groups.

But to date, fewer than2% of children passingthrough Save the Children’s reintegration programme in the Democratic Republic of Congo are girls, and this number rises to 4.2% in Sierra Leone.

Girls returning home are often marginalised and excluded from their communities. They are viewed as violent, unruly, dirty or promiscuous.

In order for progress to be made, the international community must place as much emphasis on the reintegration of girls into their communities as is currently placed on disarming them.

If the girls are left to fend for themselves in a climate of hostility, suspicion and fear, they will remain isolated – physically, emotionally and developmentally.

To find out more or to donate, go to: www.savethechildren.org.uk