The economy: Good guys and bad guys do battle

Olof Williamson was a Senior Consultant at NCVO, looking at the latest thinking on funding, finance and public services. Olof has left NCVO and his posts have been retained for here for reference.

The UK economy, having been neck deep in recessionary sinking sand since 2008, is now emerging into the fresh air. And like in a retro B-movie adventure, our voluntary sector heroes will face more economic good guys and bad guys before the credits roll. I’ve picked out two goodies and two baddies to explore in more detail.

Good guy 1: Growth

Bogged down since 2008, the UK economy is showing signs of freeing itself from the mire. Figures out next week are expected to confirm the UK had the fastest growth in Western Europe in 2013, at 1.9 percent. The IMF is predicting we’ll grow 2.4 percent in 2014, a fair speed for a developed country.

For the UK as a whole, growth is definitely going to help us out. It will mean access to technology, more money circulating in the economy, growth in shares and other assets, and boosts to employment. For voluntary organisations a stronger economy should bolster sources of income, trickling into higher donations, grants from corporate and independent funders, and better trading conditions for our services.

The big drop of 2008-9 was a case of “Honey, I shrunk the economy”, but a couple more years of growth should see us at least catch up with our pre-crisis potential.

Good guy 2: Jobs

Closely related to growth is the availability of jobs, and recently team UK seems to be doing okay here. There is no denying that unemployment at 7.1 percent, and 250,000 new jobs since October is a positive sign, though debates will rage about the type of jobs and their location, mostly in and around London.

Employment can boost incomes across the whole of society and provide social stability, putting food on the table for those most in need and providing opportunities for the excluded and marginalised.  I think for many charities, it will mean their beneficiaries are better off and more independent. And supporters and donors can contribute more as their disposable incomes rise.

So if growth and jobs can help our hero, then who are today’s economic villains?

Bad guy 1: High costs

In a scenario of stable or falling incomes, rising costs can be as debilitating for charities as Kryptonite is for Superman. Major input costs for charities and non-profits have risen, including fuel, transport, property and anything imported as the pound remains significantly weaker than back in 2008. Many of the charities I speak to have shrunk or stayed the same size while UK prices have risen over 15 percent since early 2009 (see Office of National Statistics CPI figures). We looked at inflation’s effects for the last NCVO Almanac, and David Kane and Pete Bass went even more in depth in this research paper on the impact of inflation.

Some charities have made significant attempts to improve their efficiency where possible, and make better use of donors’ or funders’ money. But in my experience higher costs and lower income can often leave an organisation struggling to achieve its goals.

Bad guy 2: Effect of government cuts

With recent Labour Party announcements on government spending, all three major parties are heading for the 2015 UK election pledging further cuts to “balance the books”. This long term squeeze will continue to have effects on voluntary organisations, who will likely see fewer grants and contracts available from government.

Reduced spending on the voluntary sector is being offset by increased contracting opportunities, for example in health and social care (statutory contracts grew significantly up to 2008-9). But last year’s NCVO Almanac predicted that government cuts will reduce income to the sector by £1.7bn in real terms by 2017/18, saving up trouble for the third act, so to speak.

So in my economic adventure story there are good guys–growth and jobs–and there are bad guys–costs and cuts–all affecting voluntary organisations in different ways. Policy changes in the next 12-18 months will affect how these pan out, while some global economic changes are of course beyond the influence of any politician.

And remember you are the hero of this story. You may not be able to change the economic weather, but you can be proactive in supporting your organisation to respond to change.

And a side note: Way back in 2010 Clara Miller discussed the causes of some of the US Nonprofit sector’s economic difficulties in this interesting article. She pointed to the vulnerabilities of property ownership, debt financing, endowments, and human-capital strategies as reasons US voluntary organisations were hit hard in their recession.

 

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