As many commentators are talking openly about what may trigger the next recession and when it might occur, it may be worth remembering the impact in the last one, in readiness for the next – whenever it comes. In 2010, the Charity Commission published a research report entitled ‘Charities and the economic downturn’. It cited a number of pressures being felt by charities at that time. Nearly 80% (of those with over £100k of income) were the hardest hit; many of whom were the same ones being asked to do more as austerity and service cuts continued to bite.
In brief, 60% of charities were affected by the economic downturn and 62% experienced a reduction in sources of income. Whilst public sector funded charities (many the preserve of larger charities) accounted for a fair proportion of this. 30% also saw a fall in donations.
Investment income was hit for many, whilst 4% actually saw an increase. 38% of charities receive investment income as part of their funding mix, with 45% receiving donations from the public. 30% receiving membership income and 16% being supported by grantmaking trusts.
This impact upon income is one of the worries that emerged from our own research, both our 2017 research with charities and the latest 2019 edition.
At the same time, unsurprisingly, a recession often brings with it an increased demand for services. Many, particularly large charities, drew quite heavily on reserves in order to maintain their services. This has been a consistent feature of Charity Commission reports. Larger organisations were more likely (32%) than smaller ones (14%) to see an increase. This was particularly the case for those delivering social services, health and community development services.
For charities affected in a downturn, the key is how resilient they are and what measures they can take to withstand the cycle. In the 2010 survey, nearly 60% of larger charities sought to reduce administrative costs; compared to just 12% of smaller charities, but that may be due in part to the fact they have a smaller administrative support function so there is little they could reduce whilst still operating effectively. Conversely, more smaller charities looked to reduce pay or leave vacancies unfilled than larger ones. Interestingly, given that volunteers are the bedrock of the sector, 10% of charities with a volunteer programme went on a recruitment drive for more.
Encouragingly, as so many charities are focused upon sustainability plans (a good idea wherever we are in the economic cycle), 44% of them do have plans in place to respond to the economic downturn.
The value of investments and any income from them can fall and you may get back less than you invested.