A year ago, we announced a review of the financial sustainability of the voluntary sector’s finances, alongside Charity Finance Group, the Institute of Fundraising, NAVCA, the Small Charities Coalition, and Locality.
Today, we launch the final report (PDF, 837KB) of this review. It brings together data from the NCVO Almanac along with sector surveys and research reports – and has been supplemented by a call for evidence across the voluntary sector. It analyses trends in the sector’s income, expenditure and assets over the economic recession and recovery. It forecasts a £4.6bn shortfall in annual income by 2018/19, if the sector is to simply maintain its current spending power.
The review examines how charities have reacted to the changing financial environment, and how headline figures of the sector’s finances mask vastly different experiences of the wider economic recovery between smaller and larger charities. It finds that many organisations have reached, or are approaching a ‘capacity crunch’ as a result of successive cuts to back office and management capacity. In combination with rising demand, these cuts are now affecting organisations’ ability to engage with even familiar sources of funding, and inhibiting the development of new types of income.
Cramming the entire review into a blog post isn’t feasible, but here are a couple of the headlines – the big picture, and the most affected.
A £4.6bn gap
Where will this significant gap in the sector’s finances arise from?
We know from Almanac data that the fastest growing source of sector income is from individuals, and the fastest falling is from government sources – both contracts and grants. Other sources of sector income (e.g. from the private or voluntary sector itself) have stagnated over the last four years.
If these trends continue, then the rates at which income from government and individuals are changing in relation to one another will define the trajectory of the sector’s finances over the coming years.
The review makes forecasts for these sources of income based on recent trends, and as shown in the graph above, by 2018/19 there will be £1.5bn gap between the amount government income will have fallen and the amount income from individuals will have risen.
Inflation will also be eating away at charities’ spending power. Using ONS figures, we calculate it will cut a further £3.1bn from the sector’s annual spending power by 2018/19. Combining this with the projected change in income leaves us with £4.6bn less spending power for the sector as a whole, compared to 2012/13.
What’s growing – and who’s not
A key focus of the report is looking not only at the top-line figures for the sector, but which organisations have most benefited or struggled from the prevailing economic conditions.
The first thing to note is that almost all of the growth in income from individuals since 2007/08 has been from fees for services, as shown below.
This has important implications for which organisations have been able to increase their income over the wider economic recovery (remember that income from individuals is the only income source that has really grown). Many charities are not in a position to charge fees for services, either because of the nature of their work or the circumstances of their beneficiaries. Even those that have been able to charge for services will find limits to doing so, as after a certain point it may begin to undermine their charitable objectives. If we look back at that first graph, this may also mean that the forecast for income growth for individuals is optimistic, as it assumes almost all of that growth to be from additional fees – which for the reasons above may not be sustainable.
The review also specifically looks at how organisations of different sizes have fared*.
Whether we look at income, staffing levels or asset growth, organisations with incomes up to £1m have seen considerable falls over recent years. Note that while the top graph on government income runs from 2007/08, the falls in staffing levels shown on the bottom graph are for the last year alone for which we have data. It’s also notable that total staffing levels for the sector actually rose – if you only look at this headline figure, you miss what’s happening for organisations of different sizes.
The review sets out a number of policy implications that will define the sector’s financial landscape over the coming years (if you’re going to read any of the review, make sure it’s these!). We will be working with the review’s partner organisations and others to ensure that sector organisations and the government address these with the urgency they require.
*These calculations aren’t able to take into account movement between different income bands, which could change the results a little. We’re going to be doing some more research on smaller charities shortly – keep an eye out for a blog from my colleague David Kane.