Finance

A gloomy outlook for charity income

22 May 2017

NCVO have recently published their latest Almanac with pessimistic predictions for the next few years including no increases in either public donations or government funding.

How is the sector likely to be able to deal with this and what will it mean for smaller charities already struggling?

The recently published Civil Society Almanac 2017 – NCVO’s annual barometer of the third sector – appeared to bear much-needed glad tidings. The sector saw an overall rise in total income, although slight (2.7%), to £45.5 billion. This means an estimated contribution to the UK economy of £12.2 billion, 0.7% of the country’s GDP in 2014/15.

Donations from the general public still constitutes the largest contribution (45%) to the sector’s income, amounting to £20.6 billion in 2014/15; and donations increased by 4% in real-terms (0.8 billion) between last year (2013/14) and this (2014/15) – the largest rise in any of the different types of income from the previous year.

Rates of formal and informal volunteering remain as strong as ever, with an estimated 14.2 million people formally volunteered at least once a month in 2015/16. In 2014/15 the sector spent £30.2 billion on charitable activities, and a further £6.4 billion on grants, to help people in need across the UK.

As Sir Stuart Etherington, NCVO’s Chief Executive comments:

There is much to be proud of …from our country’s  consistently high volunteering rates to the reach of our charities’ campaigns and services, and their impact on local communities. And the incredible support of the public highlighted in these statistics suggests that there is much that we should thank the public for too. Executive Summary

But it wasn’t not all good news: Income from local government continues to fall and has reached a level below income from central government for the first time, while corporate donations also continued to decline. And, the killer blow: all of the figures above relate to 2014/15 – a year before the recent upheavals which have befallen the sector in the last 18 months: the charity scandals, Brexit, more calls for an independent Scotland and a hastily-called election in England.

The authors of the Almanac acknowledge this, saying that this edition ‘is published in uncertain times’, and added a massive health warning about the future. The evidence-based Mystic Megs at NCVO Towers have predicted a decrease in public donations and government income – the two largest sources of charity income – over the next few years; making for an uncertain and bumpy ride particularly for small and medium-sized charities.

This is bad news for those charities who are already experiencing tough times in the wake of the global financial crisis and the increased demand brought on by austerity cut-backs to state-sponsored support.

The quantum of solace in this gloomy outlook, according to the Almanac, is earned income. Earned income is money charities earn from selling goods or services. Earned income accounts for over half (54%) of the sector’s income, and represents the biggest growth area in recent years. While voluntary donations from the public grew by just 6% between 2007/08 and 2014/15, earned income from the public grew by 35% over the same period, overtaking voluntary income as the sector’s biggest type of income in 2003/04. And while the level of voluntary donations has fluctuated year-to-year, and is still below its pre-recession peak value in 2007/08, earned income has increased from £21.6 billion in 2007/08 to 24.8 billion in 2014/15 (in real-terms (2014/15 prices)).

The largest increase in earned income over the last fifteen years was as a result of increased trading with government. Income from statutory contracts more than doubled between 2000/01 and 2010/11 (from £4.5 billion to £11.2 billion), as a result of the ever increasing tendency for statutory agencies to commission services, rather than provide them directly. This growth came to a dramatic halt in 2008/09, marking the start of the austerity drive augered by the 2010 spending review. Earned income from government currently accounts for 62% of all earned income for charities, while earned income from individuals accounts for 31%.

Many charities have also been trading more with the public, although on a smaller scale than with the government. And the shift to earned income has been widespread across the sector – only three sub-sectors – international organisations, religious organisations and grant-making foundations – now receive the majority of their income as voluntary grants and donations. And the majority of earned income is seen in charity sub-sectors such as education and training, housing, development, health and culture and recreation.

The Almanac authors point towards earned income as being the only realistic growth area for charities in the next few years. But not all charities earn income. Very small charities, which make up the bulk of the sector in terms of sheer numbers, rely much more heavily on donations from the general public, and very few earn money from government contracts which mainly go to the big boy household name charities who bring in the lion’s share of the sector’s income.

Added to this, some causes would find it difficult to market themselves with goods or services for sale. Difficult as it is to imagine in this day and age, but some hard-hitting campaign slogans shouldn’t be on a T-shirt. Likewise, some smaller charities lack the resources and sometimes the skills to turn more entrepreneurial. There’s also the issue of whether or not charities should be selling themselves more literally. It’s called the ‘third sector’ for a reason – its independence from the state and the market.

So given that we know that small and medium-sized charities are already struggling[1], this gloomy prediction is not set to offer much solace going into the next few years of further potential upheaval. Like James Bond, the charity sector is going to have to draw on all of its wily resourcefulness in order to survive the coming crunch, something I’s generally exceptional at doing. Sometimes it’s a quantum of solace is all that’s needed to keep going.

 Further information

The Civil Society Almanac 2017 is published by the National Council for Voluntary Organisations (NCVO) and the data is available FREE from the Almanac website: https://data.ncvo.org.uk

 [1] See e.g. http://www.thefsi.org/wp-content/uploads/2017/04/Index-Dec-Feb17.pdf; https://www.civilsociety.co.uk/news/mid-sized-charities-are-being-squeezed-by-local-funding-cuts.html for recent articles on this.

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Cat Walker

Dr Cat Walker has worked in the UK voluntary sector for the last 17 years, including Charities Aid Foundation where she was Head of Research from 1999-2006, and Directory of Social Change where she was Head of STEAM (Sector Trends Evidence Analysis Metrics) from 2010-2015.

Cat now works as a freelance consultant and is the founder of The Researchery – a policy-focussed, strategic research surgery for those who want to get more out of data for evidence-led social change we can all believe in.

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