Keeping up-to-date with the numerous factors impacting finances within the charity sector helps create a clearer picture of its current and future economic outlook.
There are several reports and published data that contribute towards depicting an objective view of the sector’s finances and the potential reasons behind fluctuations.
In April, the Charity Commission published insights from the annual return 2022 – the most inclusive data set available on the charity sector.
An overriding finding from the data was that, on average, larger charities saw income and expenditure grow while smaller charities experienced greater increases in expenditure than income.
Key stats for all charities that submitted an annual return
- Total gross income increased by 8.48% to £90.3 billion in comparison to 2021;
- Total gross expenditure increased by 9.19% to £87.4 billion;
- 12,000 charities with an annual income above £500,000 saw a 38% increase in fundraising income, influenced by a relaxation of Covid restrictions;
- Charities with an annual income below £500,000 saw a 3.24% increase in income and an 11.6% increase in expenditure;
- The number of charities receiving government grants fell by 24%; and
- The number of charities providing services via government contracts increased by 25%.
The comprehensive nature of the annual return makes it a valuable indicator of the condition of the sector’s finances – providing a reliable marker to assess current conditions and determine how the sector is evolving.
We know that some financial conditions have weakened since 2022, specifically inflation, funding pressures, and the ease of recruiting trustees and volunteers to the sector.
The NPC State of the Sector 2024 report goes further in highlighting the financial impact of an increasing number of charities fulfilling government contracts.
Feedback from charity leaders, users, and the public indicates that
- The majority of public service contracts have not increased in line with inflation (only a quarter have increased);
- 62% of charities believe they do not receive the full value it costs to deliver a public sector contract, with the average charity contributing 35% of the value of a contract.
The NPC estimates that charities support state services by £2.4 billion a year.
The Charities Aid Foundation (CAF) report on UK Giving provides an overview of donations given throughout 2023 – a record £13.9 billion (an increase of £1.2 billion in 2022). While this figure is undoubtedly encouraging, reading further into the donations behind this amount casts some uncertainty over the future growth of fundraising support.
The report highlights the statistics behind the growth – with fewer people donating overall, but with increased amounts from some donors to boost the headline total.
Findings from this report include
- Fundraising relies on a declining number of donors;
- The typical donation to charity hasn’t increased since 2017;
- The average monthly donation was £20 (this would have needed to increase to more than £25 to enable a charity to buy the same amount of goods and services in 2024); and
- £800 million less went to overseas aid and disaster relief causes.
Future financial outlook
As is the nature of a forward-looking prediction, there is no definitive answer when it comes to the shape of the charity sector’s financial future.
What can be gleaned from various official data sources and the viewpoints of prominent stakeholders is that the sector continues to face uncertainty, through an increase in total gross expenditure; a decrease in government grants; the financial pressures of fulfilling government contracts; and a declining number of people donating, coupled with a stagnation in the monthly amount donated.
Recommendations
Amidst uncertainty, it can be difficult to know what actions a charity can take to position themselves favourably for the future. However, there are some practical steps that can be taken to help improve financial security.
- Ensure a clear understanding of income streams and cost structure;
- Identify any financial hurdles at an early stage by keeping accurate management accounts;
- Undertake regular cash flow forecasts;
- Have a clear fundraising strategy that takes into account the habits of key donors;
- Closely monitor income streams;
- Utilise available grants (take a look at Charity Excellence’s free Funding Finder);
- Consider if there is any scope to partner with other charities; and
- Remain proactive when responding to developing trends or opportunities.
