Exploring trends in charities’ incomes

This is a guest post by John Mohan and Yeosun Yoon from the Third Sector Research Centre. John is director of the centre and author of various books and articles on the voluntary sector and volunteering. Yeosun is a research fellow at University College London. The centre has worked closely with the NCVO research team for over the last decade and their joint work led to the creation of the datasets that underpin the NCVO Civil Society Almanac.

The past decade has been turbulent for charities in England and Wales, with a period of recession followed by austerity. Research on the effects of these developments on charity finances is either pitched at a very general level – such as the NCVO Almanac’s estimates of trends in income sources – or is based on small-scale, local surveys and case studies. The perspective of individual organisations can get lost in the former while it is difficult to generalise from the latter.

We wanted to explore the trajectories of the finances of individual organisations using Charity Commission data on incomes and expenditures over a 15-year period.

Our approach to studying

We were struck by a paper on household income trajectories by John Rigg and Tom Sefton in which they had tracked thousands of individuals over time and discovered several kinds of trajectory. They ranked where households were in the income distribution, so if your household was at the 66th percentile of the distribution then two-thirds of households had lower incomes than yours. They then looked, over a period of more than a decade, at how households had moved up or down the distribution, or stayed where they were. So a household had experienced a significant rise if it ended up at least 20 percentiles higher in the income distribution from where it started.

We applied this approach to charities, following 31,400 organisations that reported their finances every single year from 1999–2014.

The majority of charities have maintained a relatively stable income

Three-fifths of our selected organisations showed relatively stable incomes over the 15 years. 37% had experienced a ’flat‘ trajectory – ie their income stayed within 10 percentiles of their original position every year. Another 26% saw a ’flat with blip’ trajectory, which means there were one or two years in which their income had fluctuated by more than ten percentiles from the previous year, but otherwise stayed more or less where it was.

Falling or rising trajectories were experienced by 6% and 8% of organisations. What we described as ’fluctuating‘ charities accounted for 8% of charities; this means that they have had at least three significant increases or decreases in their rankings over time. The remaining organisations (approximately 16%) had experienced none of the foregoing. The graphs illustrate what these trajectories look like.

Image of graphs illustrating the income trajectories described

Educational organisations were more likely to see rising income

So the first point to note is stability, for most organisations. Despite a turbulent decade, most charities remained more or less where they began in the income distribution. But what can we say about those that didn’t?

Firstly, rising trajectories were most notable among educational organisations, such as playgroups and other pre-school provision like nurseries. This reflects more policy support for and investment in this field. It is also in part because these organisations were relatively new to the Charity Commission register in the 1990s – and an artefact of the approach we use is that upward movement is easier for small organisations (a small increase in funds can push you many places up the rankings, but that’s not the case among the largest organisations).

As for falling trajectories we found some evidence of this for certain health-related charities, such as hospital Leagues of Friends, and also for some types of international development organisations.

Age and location of an organisation were linked to income stability

One factor associated with particular trajectories is the age of the organisation: it is clear that the longer-established the organisation, the more likely it was to experience a stable trajectory, compared to much younger entities. The latter is what organisational sociologists call the ‘liability of newness’ – that is, new organisations need to establish stable sources of revenue.

One factor that doesn’t seem to have an influence, perhaps surprisingly, is disadvantage – the deprivation index didn’t seem to be consistently associated with any of the trajectories, though you might expect an association with falling revenues. Geographical scale of operation seems to be relevant: generally, local charities (defined as those operating within a single local authority) seemed far more likely to experience a stable (flat, or flat with blip) trajectory.

What next?

There are limitations to this measure due to its emphasis on relative position in the income distribution. Large moves in the rankings of organisations are highly unlikely near the top of the income distribution because enormous shifts in resources are necessary to allow organisations to do so. Thus the data are more useful for analysing the effects of other characteristics like organisational age, sector, or location.

The emphasis on organisations that appear every year means we do not observe organisations that close, or miss out on making a financial return for a year or two. So we’re going on to repeat the exercise but this time using measures of absolute changes from one year to the next and, though this is more complicated, taking account of entrances and exits to avoid the argument that the conclusions are affected by survivor bias.

 

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