Addressing the chief executives and chairs of the UK’s major charities at a seminar organised by NCVO, Clark said the government had the right intentions in making use of the sector to improve public services delivery. But he raised his fears about the strict contract culture the third sector had been forced to accept in an attempt to ensure services are well delivered.

“I have concerns about some of the ways in which its being done,” he said. “If you’re not careful you end up not asking people to do things differently but to transfer the way contracts are carried out in the public sector into the third sector.

“For government to specify so tightly what they want and what they expect risks missing the prize,” Clark added. “The danger is that you crowd out or smother some of the entrepreneurial instincts of the sector and leave less space for creativity.”

He said government should be less risk averse, and eliminate the culture of suspicion over the spending of public money. “There is a whole culture of risk aversion that has understandable roots but needs careful attention,” he said.

Clark admitted that becoming less risk averse could lead to increased failure, but also bigger successes. However, he said charities must retain their independence despite closer relations with government. One way to do this is to ensure an independent income stream through fundraising. “I would regard it as worrying if the growth of public funding in the sector were to overtake the growth of private funding,” he said.

Clark warned that the third sector must stand up for itself if it wants to ensure it achieves full cost recovery. “Sometimes I think you give politicians something of an easy ride,” he said. “When it comes to the Compact I think your patience has been tried.”