Is the voluntary sector growing, or shrinking? Digging into the charity register

story in Third Sector last month showed how the income of charities on the Charity Commission register have risen by £3bn to £62.8bn. As a commenter notes underneath the article, this feels very different to the results shown in the latest Almanac, launched in March, which showed that the sector had contracted by 1.7%. It’s also an issue that Richard Harries of Reform raised in his presentation to Evolve Manchester.

The Almanac paints a picture of a shrinking sector.

How can these contradictory trends be reconciled?

#1: They cover different periods

The latest financial data in the Almanac is from 2011/12, and so the changes we describe are based on comparisons with 2010/11. Obviously we want to have the most recent possible data, but collecting and analysing the data (as well writing the book!) will always take time.

The timescale of the Charity Commission data is less clear – it’s based on a snapshot of the charities registered at the end of March 2014. But that’s not when the financial data relates to. The financial data is based on the latest annual return of the charity, which is usually ten months old. For some charities that haven’t returned for a while, this number can be more than three years old, and there’s no guarantee that these charities still have income that large.

#2: They are based on different definitions

As I’ve explored before, the Almanac and the register of charities use different definitions. The Almanac data uses the register, but exclude a number of charities that don’t fall under the “general charities” definition. The Almanac figures also include Scotland and Northern Ireland, but the Charity Commission only covers England and Wales.

Two-fifths of the income on the Charity Commission register isn’t included in the general charities definition used in the Almanac. Excluded organisations include:

  • independent schools (£6.5bn)
  • religious bodies (£4.5bn)
  • housing associations that are registered charities (£2.9bn)
  • universities (£2.9bn)
  • central and local government administered charities (£2.5bn).

There’s a bigger question here about why we use the general charities definition and whether it’s the most appropriate way of mapping the current voluntary sector. It’s something we are thinking about and I’ll explore this in another post – we need a definition that reflects today’s sector, but also allows us to compare trends over time.

#3: Newly registered charities

Fluctuations in the total income of all charities on the Charity Commission register are often due to large groups of charities, or individual charities, registering at once, often for regulatory or administrative reasons. The Charities Act 2006 led to many new charity registrations based on shifting criteria for registration, but these organisations already existed – just not as a registered charity.

Some of these charities are so large that they can have a substantial effect on the size of the sector. The Lloyds Register Foundation registered in February 2012 and reported its income of £950m, a third of the increase seen in total income of charities on the register. Lloyds Register Foundation is the sole shareholder in Lloyd’s Register Group Limited, a large multinational company. The group was formerly registered as an Industrial and Provident Society and so wasn’t on the register of charities.

The Almanac has to cope with this too – with each new charity we have to decide whether it meets the general charities definition. But the advantage of using a consistent general charities definition is that the impact of these regulatory changes can be minimised.

#4 Inflation, inflation, inflation

Finally, it’s worth remembering that figures on the Register of Charities for previous years are not adjusted to take inflation into account. Assuming that the figures relate to 2012/13 and the previous year, the £3bn rise reported by Third Sector is reduced to £1.4bn in real terms.

Inflation is important – looking at changes in financial data over time without it means you’re failing to compare apples with apples; having £1,000 in the bank in 1900 was a lot more useful than having £1,000 in the bank today.

The chart below shows the impact of these last two reasons. It shows the “geology” of the income of all registered charities (not restricted to general charities) since 2000. The bands represent organisations registered at that time, and then their income is shown across the years, adjusted for inflation. The graph shows the impact of newly-registered organisations on the figures (although it should be noted that some of these “new” registrations are actually re-registrations or mergers of existing charities).

There is a natural churn of organisations that means that we would expect to see new organisations replacing the income of older ones. But, as the chart shows, since around 2007/08 these new organisations have only been replacing the falling income of older organisations, rather than growing the sector as a whole. This broadly reflects the pattern we’ve seen in the Almanac.

The Charity Commission register is a valuable resource for researching the sector. It gives us the chance to find out so much about how organisations are doing, and what the sector’s strengths and weaknesses are. But like any data set, drawing conclusions requires an understanding of the source material before it can be used to look at trends.

Is the sector shrinking?

When you take the reasons above into account, I believe the Almanac gives us a better picture than the raw numbers. It’s not perfect, and we are constantly aiming to improve our definitions and methodology, but to me the trends are clear, and reflect what we’ve heard from our members.

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David Kane was formerly NCVO’s Senior Research Officer. He discusses open data and emerging trends in the voluntary and community sector and wider civil society.

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