06/05/2013 09:16 BST | Updated 04/07/2013 06:12 BST

The Crisis in Charity and What to do About It

During times of austerity charity is more important than ever. Lamentably, however, the sector as a whole has suffered greatly as a result of the recession. As demand for the services charities provide has ballooned, supply has failed to keep pace with it; last year the use of food banks tripled in the UK but in a poll for the Charities Aid Foundation a sixth of the charities surveyed said they may be forced to close their doors in the coming months after donations dropped 20% in 2012.

The money is drying up just when its needed most. An estimated 1.4 million Brits are currently failing to keep up with their mortgage payments and, since the recession hit, the number of families asking for help from homeless charity Shelter has nearly doubled. A study by charity Help the Hospices a few years ago put the cost of running our country's hospices at £1.4m a day, but getting the required funding seems nigh on impossible at a time when everyday people are tightening their belts. Even some legacy charities have been forced to cancel fundraisers because they can't afford to host them in the first place. This strain on charities could have been even worse had they not been spared from the coalition's proposed cap on tax relief for individual donations by an abrupt U-turn.

So how can we best recession proof altruism? It's a gargantuan task to begin with, one not lost on the likes of Duchess of Cambridge Kate Middleton who recently lent her support to Children's Hospice Week in a televised address. These kinds of celebrity endorsements are certainly appreciated, and should be encouraged, but the positive impact they have on donations is likely to be but a drop in the ocean compared the level of financing actually needed.

At the end of the day, the solution to the squeeze on charity funding has to come from individuals. More specifically, it has to come from enterprise philanthropy. It certainly isn't going to come from government; the Charity Commission, which facilitates the efficient running of the sector, was cut by 10% between 2011 and 2012, a symptom of an austerity agenda that shows no signs of abating. All the way back in 2008 Bill Gates recognised that the need for charitable giving now far exceeds that which can be catered for by governments and official philanthropic organisation alone anyway, calling on business to do more.

Currently, UK businesses (excluding banks) are hoarding cash to the tune of £318bn. As valuable as investing in expanding their own production is, whilst demand remains deflated businesses simply have no incentive to do so. Instead of stockpiling this cash for a rainy day that's already upon us, business should be investing in philanthropic ventures. When resources are scarce, efficiency wonks from the world of business are best placed to get the most out of them, something that applies to charity just as well as it does to enterprise growth

Just 0.5% of the cash pile UK entrepreneurs are just sitting on would be enough to offset last year's fall in charity funding. Not only will this do well to endear them to their consumer base in the majority of cases, it may also remove some of the financial burdens for people who would otherwise be buying their products. The kind of people forced into visiting food banks, for instance, are highly unlikely to be splashing out on the kind of high quality products that are integral to British enterprise.

It is within the power of the business community to break the vicious cycle of poverty many reliant on charities now face, and there are various ways it can go about it. Business leaders could start by investing more in educational charities. Universities, for instance, are able to equip future employees with the skills they need to succeed in part thanks to voluntary donations amounting to £693m a year. Problem is, many business heads are probably unaware that the majority of UK university's have an 'exempt charity' status, the only difference between them and a 'mainstream' charity being that they don't have to register in the same way. Helping finance these would be as good an investment as any that a business could make right now. Starting their own educational charities could turn out to be an even better one.

Philanthropic ventures could prove particularly valuable for businesses with very specialized interests, for they have a clear incentive to help out charities that align with these. Its not just this targeting philanthropy that is economically valuable though; social returns from most charitable projects accrue not just to the public, but to businesses as well.

The truth is that though altruistic motives are admirable in themselves, firms aren't as likely to be driven by them as they are by their wallets. If they can find more ways like the aforementioned to make philanthropy more like investing, then we could plug the charity gap in a heartbeat. Everyone stands to gain when this happens.