Public sector cuts could create financial black hole for thousands of charities
(24 March 2010)
Research published today by the Charity Commission gives a new perspective on the extent to which cuts in public sector spending may affect larger charities* when many public service delivery contracts between charities and public sector bodies end in March 2011. The figures are from the Commission’s latest Economic Survey of Charities, the largest representative survey on the effect of the downturn on charities. The independent research shows that almost a quarter (24%) of charities with an income of £100,000 or more consider public sector funding to be their most important source of income.

Dame Suzi Leather, Chair of the Charity Commission, said: “Clearly severe cuts lie ahead in both local and central government resources; many local authorities are already identifying spending on the voluntary sector as being vulnerable**. There is a real concern that charities which receive money from the public purse to fund their valuable work could find themselves at a financial cliff edge in March 2011. This suggests that the high levels of optimism displayed by the charities we spoke to may be misplaced.

“Of course, many charities play a hugely important role in delivering public services and rely heavily on public sector funding. These charities should ask themselves: can we take steps to increase our chance of winning local contracts? Could we collaborate with another charity to reduce costs? Or are there ways to diversify our income? The Commission has produced advice and guidance to help charities during what is a very difficult and unsure time.

“Optimism is, of course, very important, but it must be matched by a recognition of the reality of the financial situation. We want trustees to channel their formidable energy into doing all they can to protect the valuable work of their charity. Despite what we may be seeing in other areas of the economy, our research shows that the financial recovery for charities may lag behind that of other sectors.”

The Charity Commission’s fourth Economic Survey of Charities demonstrates the continuing effect of the recession on charities in England and Wales. The key findings of the survey of 1,010 charities, carried out by MVA Consultancy, include:

* 59% of charities report having been affected by the downturn, up from 38% in September 2008 and 56% in September 2009. Of those affected, 62% have experienced a drop in income.
* Larger* charities have been hit hardest, with 79% feeling the impact of the downturn and a third seeing an increase in demand for services. These charities are also more likely to predict a decrease in income than small and medium charities, with 28% anticipating a drop in funds compared with 14% of small and 16% of medium charities.
* This disparity is also reflected when looking at the steps that charities have taken in response to the downturn, with 79% of the largest charities putting measures in place, compared to 31% of small charities.
* Yet, 84% of all charities said they were optimistic about the outlook for the next year. This figure has increased from 69% expressing optimism six months ago.
* Almost half of charities (47%) expect the recovery of the charity sector to lag behind that of the rest of the economy.
* International, health and social service charities have been most affected by the downturn. 74%, 74% and 65% respectively of these types of charity report having felt the impact, compared with 59% of all charities.
* 19% of charities have seen an increase in demand for services in the last six months. This compares with 17% reporting an increase in demand in September.
* 45% of the charities surveyed fundraise from the public; this is the most important source of income for almost a quarter of all charities (23%).
* Investment income continues to be the most affected, with 62% of charities with investments having seen a decrease in the past six months.