Assessing financial vulnerability and risk in the UK's charities during and beyond the COVID-19 crisis

Lead Research Organisation: University of Birmingham
Department Name: Third Sector Research Centre

Abstract

There are significant public concerns about the impact of the economic consequences of COVID-19 for UK voluntary organisations. The lockdown has caused the cessation of income generation activities involving face-to-face contacts; it will be followed by longer-term impacts depending on the scale and duration of the post-crisis recession. The impact will be highly differentiated, between organisations of different missions and size, and between communities. Central and national government, funders, voluntary organisation infrastructure bodies, and organisations themselves require analysis of these impacts if they are to make informed decisions.

The immediate needs are for understandings of:

1. exactly what sorts of funding streams are at risk, and how the reduction or cessation of that funding has differentiated impacts

2. the extent to which the economic impacts of COVID-19 will differ in magnitude and character from previous shocks to voluntary sector income (there is a baseline degree of fluctuation in organisations incomes and expenditures, but we anticipate the crisis will affect far more organisations);

3. ongoing differential impacts depending on the progress of moving out from lockdown.

Our work will contribute to an improved evidence base, providing actionable information on the exposure to risk of charities, drawing on a growing volume of administrative and transactional data. This will provide more granular, policy-relevant data on the impacts of economic change on charitable organisations. In turn this will provide a firmer evidential basis for interventions such as targeted financial support for strategically-significant charities.
 
Description The award is providing, as closely to real time as the data allow, evidence on the financial position and vulnerability of UK charities since the onset of Covid-19. We use regulatory returns to the Charity Commission (England and Wales) and the Office of the Scottish Charity Regulator (OSCR). Initial findings include analyses in some detail of the reserves held by charities, and of the exposure of charities to specific income sources. We show that relatively small proportions of organisations have reserves equivalent to at least 3 months of expenditure, which is likely to limit their ability to survive if the somewhat apocalyptic predictions of doom in the charitable sector were to come true.

Subsequent findings covered:

1. the influence of the prior income composition of individual organisations on their exposure to risks of loss of income during Covid 19. We show that organisations' income mix tends to be fairly stable over time, which means that if they are heavily dependent on income sources affected by Covid, their ability to pivot to alternatives is likely to be limited;

2. financial vulnerability of organisations - using over 20 years of data for England and Wales, and fifteen years for Scotland, we show that the level of disruption to charity finances thus far has been of an order of magnitude greater than anything previously experienced since 2000. The median real terms change in incomes, for financial years ending after March 2020, was a drop of 13% while at the 25th percentile the drop in income was just over 40% - a level which substantially exceeds anything experienced in the recession of 2008-9.

3. thus far, despite pessimistic projections, we have not witnessed a substantial increase in closures or dissolutions of organisations, and nor have we seen a substantial increase. This pattern is also found in other countries, using comparative regulatory data.

4. we have found evidence that, if anything, the effects on expenditure were even greater than on income. It looks as if the typical organisation experienced a reduction in expenditure that was greater than the typical reduction in income, probably because of the effect of lockdown restrictions on activity, and because some organisations continued to accumulate income, from electronic transactions, even when face to face activities were prevented.
Exploitation Route to inform discussion of measures to mitigate the impacts of the pandemic on financial stress in charities, e.g. allocation of resources to support charities
Sectors Communities and Social Services/Policy,Leisure Activities, including Sports, Recreation and Tourism,Government, Democracy and Justice,Culture, Heritage, Museums and Collections

URL https://www.birmingham.ac.uk/research/tsrc/index.aspx
 
Description Cited in evidence of UK Parliament and Senedd inquiries. internal discussions with regulators regarding the evidence base for the third sector, including giving such organisations advice on what data to capture and why it might be useful. Participation in discussions with government staff, e.g. DCMS. Research findings widely covered in relevant press, e.g. third sector, Civil Society. Data and evidence used to inform analysis in evaluation of DCMS Covid funding schemes to support charities particularly affected by Covid, an evaluation in which the PI was heavily involved.
First Year Of Impact 2020
Sector Communities and Social Services/Policy,Healthcare,Leisure Activities, including Sports, Recreation and Tourism,Government, Democracy and Justice
Impact Types Societal,Policy & public services

 
Description Advice to Scottish Government on surveying charities about financial disruption due to COVID-19
Geographic Reach National 
Policy Influence Type Participation in a advisory committee
 
Description Engagement with the Charity Commission for England and Wales about improving quality and usability of charity administrative data
Geographic Reach National 
Policy Influence Type Participation in a advisory committee
 
Description Engagement with the Scottish Charity Regulator about measurement of financial risks and reserve levels in Scottish charities
Geographic Reach National 
Policy Influence Type Participation in a advisory committee
 
Description discussions with inquiries into future of civil society - Law Family Commission, led by Pro Bono Economics. Discussions relate to relevance of our evidence base to their ongoing analyses of current state and future prospects of civil society organisations
Geographic Reach National 
Policy Influence Type Participation in a advisory committee
 
Description evidence to DCMS Inquiry into effects of Covid on the voluntary sector
Geographic Reach National 
Policy Influence Type Gave evidence to a government review
URL https://committees.parliament.uk/work/243/impact-of-covid19-on-the-charity-sector/publications/writt...
 
Description evidence to Senedd Inquiry into effects of Covid on the voluntary sector
Geographic Reach National 
Policy Influence Type Gave evidence to a government review
URL https://business.senedd.wales/mgConsultationDisplay.aspx?id=393&RPID=1524943390&cp=yes
 
Description Conference: CELEBRATION OF ARNOVA'S 50TH ANNIVERSARY: Reflections on Where We Are and How Far We Have Come! 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Third sector organisations
Results and Impact 50th ARNOVA conference held on line /hybrid due to the impact of the Coronavirus Pandemic
Year(s) Of Engagement Activity 2021
URL https://www.arnova.org/page/50th
 
Description Briefing Paper 1 : Assessing the financial reserves of English and Welsh charities on the eve of the Covid-19 pandemic 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Third sector organisations
Results and Impact Presentation of initial findings
Year(s) Of Engagement Activity 2020
URL https://www.birmingham.ac.uk/research/tsrc/research/assessing-financial-vulnerability-and-risk-in-th...
 
Description Briefing Paper 2: Income dependence and diversification of UK charities at the onset of Covid-19 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Third sector organisations
Results and Impact Specific update on first of the identified areas of focus: Income dependence and diversification of UK charities at the onset of Covid-19. Setting the scene for future research
Year(s) Of Engagement Activity 2021
URL https://www.birmingham.ac.uk/research/tsrc/research/assessing-financial-vulnerability-and-risk-in-th...
 
Description Briefing Paper 3: The impact of COVID-19 on the foundation and dissolution of charitable organisations 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Third sector organisations
Results and Impact Assessing the COVID impact on establishment and dissolution of Charitable Trusts
Year(s) Of Engagement Activity 2021
URL https://www.birmingham.ac.uk/research/tsrc/research/assessing-financial-vulnerability-and-risk-in-th...
 
Description Briefing Paper 4: Patterns of financial vulnerability in English and Welsh charities after the onset of Covid 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Third sector organisations
Results and Impact Setting out the financial vulnerabilities of Charities in England And Wales post COVID pandemic
Year(s) Of Engagement Activity 2021
URL https://www.birmingham.ac.uk/research/tsrc/research/assessing-financial-vulnerability-and-risk-in-th...
 
Description Briefing Paper 5: Financial vulnerability of Scottish charities during the COVID-19 pandemic 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Third sector organisations
Results and Impact Assessing the Financial vulnerability of Scottish Charities during the COVID-19 pandemic, following on from Briefing paper 4 which covered English and Welsh charities
Year(s) Of Engagement Activity 2021
URL https://www.birmingham.ac.uk/research/tsrc/research/assessing-financial-vulnerability-and-risk-in-th...
 
Description Briefing paper 6: Financial Vulnerability in UK charities under Covid-19: an overview 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Professional Practitioners
Results and Impact Final presentation in the series for this grant, to pull together themes, trends and conclusions. Also included a view of potential follow on research topics
Year(s) Of Engagement Activity 2022
URL https://www.birmingham.ac.uk/documents/college-social-sciences/social-policy/tsrc/financial-vulnerab...
 
Description Conference: Beyond the echo-chamber: a vision for social policy 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Third sector organisations
Results and Impact Conference held virtually due to impact of the Coronavirus Pandemic
Year(s) Of Engagement Activity 2020
URL http://www.social-policy.org.uk/news/social-policy-digital-festival-13-17-july/
 
Description Conference: Building bridges in the aftermath of COVID-19 : Where will the philanthropy of today lead us tomorrow? 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Third sector organisations
Results and Impact Attendees from across the Globe to advance, coordinate and promote excellence in philanthropic research in Europe.
Year(s) Of Engagement Activity 2021
URL https://drive.google.com/file/d/1xdGPErMwuqxOGAIdbaSlsrvWjbChnVNx/view
 
Description Conference: Collective Action and Responsiveness in the Global Context 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Third sector organisations
Results and Impact Presenting findings and methodology to the most respected scholarly research association focused on the Third Sector and become part of the community that is building a foundation of knowledge about civil society, the non-profit sector, philanthropy, volunteerism, and social economy around the world.

ISTR members access the latest developments in Third Sector Studies, the larger community of third sector scholars, researchers and practitioners, and opportunities for professional development and public outreach.
Year(s) Of Engagement Activity 2021
URL https://www.istr.org/page/Virtual_2021
 
Description Conference: From Climate Change to Social Justice: How Citizens are Re-Shaping Nonprofits and Philanthropy in an Age of Disruption and Transition 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Third sector organisations
Results and Impact 49th ARNOVA Conference held virtually due to the impact of the Coronavirus Pandemic
Year(s) Of Engagement Activity 2020
URL https://www.arnova.org/page/2020_conference
 
Description Conference: Global Challenges: National Social Policy Responses 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Third sector organisations
Results and Impact Held virtually due to the impact of the Coronavirus Pandemic
Year(s) Of Engagement Activity 2021
URL http://www.social-policy.org.uk/spa-2021-conference-programme/
 
Description Leadership, Diversity, and Civil Society 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Professional Practitioners
Results and Impact The voluntary sector and wider civil society find themselves under a multitude of pressures. The impact of a deadly pandemic which has cost over 2 million lives worldwide has both reduced organisation's fundraising ability and meant their services are never more needed. The Black Lives Matter movement and other social justice orientated campaigns are contributing to a re-evaluation of the sector's commitment to equality, diversity, and inclusion, and how it may consciously or inadvertently serve to reproduce wider inequalities. Heightened conflicts within national and international politics arouse civil society's need to lead as a space where trust, dialogue, and collaboration occur, and where the pressures of rapid social change can be ameliorated. The climate crisis cannot be solved without civil society and voluntary action.

At times, these challenges have seen the sector lead as an innovator at a local and global level. In some cases, we have perhaps witnessed a growing sense of agency as it seeks a stronger voice in defining its own role in society. How the voluntary sector shows leadership, or how its leadership needs to be recast in order to tackle these multi-faceted challenges, is a central concern. And if an increased or renewed commitment to social justice and representation is occurring, we need increased reflection and learning about how that process is taking place, to assess the internal and external role leadership should play in correcting the failures of diversity in the sector.

This conference invites participants to explore these issues. In 2021, the Voluntary Sector and Volunteering Research Conference - organised by the Voluntary Sector Studies Network (VSSN), in partnership with the Birmingham Voluntary Service Council (BVSC) - will provide a unique opportunity for academics, policy makers and practitioners from the UK and further afield to come together to share findings and discuss the implications of research for the sector's future as a site of social leadership and social justice.
Year(s) Of Engagement Activity 2021
URL https://www.vssn.org.uk/2021-voluntary-sector-and-volunteering-research-conference/
 
Description Meeting with Charity Commission for England & Wales to discuss charity classification 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Professional Practitioners
Results and Impact Meeting with representatives from the Charity Commission and DCMS to discuss charity classifications, based on our research findings, to help inform the collection of data on charities.
Year(s) Of Engagement Activity 2022
 
Description Meeting with Charity Commission for England & Wales to discuss data-driven regulation 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Professional Practitioners
Results and Impact Meeting with Assistant Director of Planning, Performance and Risk at Charity Commission and Assistant Director Customer Services and Registration at the Charity Commission for England & Wales to discuss how our research might help inform their risk-based regulation.
Year(s) Of Engagement Activity 2022