An uncertain future
Cathy Pharoah and Mark Pincher confirm that the recession has hit charities hard but innovative thinking has been an important part of regaining control
The new Charity Market Monitor 2010 (CMM 2010) provides the first empirical evidence of the shape of the sector’s finances in the economic downturn. For charities the last year has been characterised by deep anxiety, from fears about corporate donations, the earliest casualty of recession, to anxieties about the impact of stock market falls on investments, on trust grants and on individual donors. Even the supply of second-hand goods to charity shops appeared to be a victim of recession. On the other hand, new opportunities were emerging for some charities, in particular the major national galleries, parks and houses, as consumers cut down on overseas travel in favour of domestic resources.
Extending the panels of charities this year from 300 to 500, and drawing on data in the annual accounts of the top fundraising charities plus the top grant-making trusts in 2008/09, CMM 2010 tracks financial trends in a year which began with some of the steepest falls in economic growth ever, followed by gradual recovery towards a move out of recession. What shape is the sector in to face the era of public sector spending cuts? Some of the findings of CMM 2010 are previewed in this paper, which also presents a unique new listing of the top charity by cause.1
Fundraising income of the top 500in 2008/09
Results show that income from fundraising amongst the largest fundraising charities took a knock in 2008/09, and that overall it did not manage to keep pace with inflation as in the previous year. While previous fears of a ‘black hole’ in charity accounts, or a cliff-edge drop proved premature, two-fifths of the top charities saw a fall in their absolute fundraising income in 2008/09. The drop in the larger charities was twice that experienced by the others.
Falls in legacy income were a major contributing factor to the drop in fundraising income. The only major cause area which did not see a fall in legacy income was cancer. Many charities reported mid-year reviews of strategy and planning as it became clear that fundraising targets would not be met, and it is likely that such approaches mitigated the severity of the problem in some cases. Events income continued to show strong growth, reaching an average 9 per cent in real-terms amongst the sample of the top 300 charities, though lower across the sample as a whole. It is possible that fundraising events have particular appeal in a time of recession, offering donors cost-effective opportunities to have fun or set themselves new challenges while at the same time bringing the reward of giving.
Earned income
Non-voluntary income also struggled. Income from primary purpose activities, which now represents 20 per cent of total income amongst the large fundraising service-providing charities, just beat inflation. However, income from investments fell by a real 8.6 per cent, on the back of a real fall in the value of net assets of 10 per cent.In spite of these problems, charitable expenditure did not fall, suggesting that charities successfully cut some costs, or drew on their reserves.
Impact of recession by cause
Different causes depend on different funding streams, so a key issue is whether all causes were impacted to the same degree by the economic volatility of last year. Figure 2 sets out the top charity in each cause area across the top 500 and ranks them by fundraised income to reveal the hugely different fundraising power that exists within the different causes, from Cancer Research UK’s £368m to the Community Security Trust’s £5.7m.
Some commentators felt that faith-based causes, for example, with their pool of regular committed donors would have some protection. To study the extent of possible variations in the effect of recession, CMM 2010 provides a new comparative analysis of the varying funding structures of the main charitable causes. Figure 1 shows the breakdown for cancer causes and for faith-based causes.
It reveals that the proportion of income derived from legacies by cancer causes is three times the proportion derived by faith-based charities, and also that events fundraising is much more important to cancer than to faith-based causes. The top four causes by fundraising income were health, international, social care and religious/faith-based causes. Of these top causes, only the religious/faith-based category saw a fall in fundraised income. This was due mainly to a fall in the value of donations, probably resulting from a reduced ability to give in many of the populations and congregations from which they draw support. International causes showed one of the best growth rates, but even this was at a relatively modest 2.9 per cent.
Hospices in the top 500 charities saw an overall drop in fundraising income, mainly because of falls in the value of the vital legacy income on which they depend. CMM 2010 also provides a more extensive listing and analysis of the 70 largest hospices, revealing the importance of their asset bases in overall financing. The assets, by fundraising, of the top 70 hospices were worth £744m, an average of £10.6m per hospice. The fall in asset values presented a further blow to hospice finance.
Charitable trusts
The income of the charitable endowed trusts is highly sensitive to trends in the wider financial markets, and it was not surprising to find that the investment income to the top 500 took a massive hit from the market falls of the recession in 2008/09. Worth £921m, it fell from over £1bn the previous year, a real 14.9 per cent in value. This figure is likely to reflect decisions made about how much income to take from investments, and how much to put back into reserves, as well as lower market values.
Nonetheless, it resulted in a marked reduction in grant-making across the top 500 after adjusting for inflation, a further blow to fundraising charities which faced falls in fundraising income in many other areas.
Moving forward
What lies ahead for charity fundraising? The results of CMM 2010 indicate how far charities’ ability to raise funds is linked to trends in the wider economy. It is also possible that the further effects of recession will be seen when a set of accounts data fully covering the third and fourth quarters of 2009 is available.
While some commentators have argued that recession provides the true test of public generosity, others have argued that charitable giving cannot avoid being subject to the same pressures as other areas of consumer spending, and as a ‘luxury’ spend, it may be an area where consumers particularly feel they can cut back. The findings of CMM 2010 do not suggest that individual consumers have prioritised charitable giving as an area for cutting their spending, but they do suggest that donors have had to reduce the amount they give in line with other spending constraints.
Although there are now signs of fragile economic recovery, there is still uncertainty about the outlook for the future. The Bank of England predicts that the UK economy has only just started along the road to recovery, returning to growth from the beginning of 2010 and reaching an annual rate of about 3.75 per cent by the end of 2011. It is likely that trends in charities’ income will follow this path quite closely, firstly needing to recover lost ground and then showing a small increase by the end of 2011. However, the full impact of the forthcoming public sector spending cuts cannot be predicted at this stage, and they are likely to deal another blow. They may mean that overall the funding of the major service-providing fundraising charities sees little growth in the medium-term, and will struggle to contain losses.
Innovative thinking
A major challenge for top charities is what will happen to legacy-giving. Its value is partly out of their control, because of its direct link to market and property values. And donors’ anxieties about their families’ future in a time of economic uncertainty might further suppress a certain amount of legacy-giving. It is important that charities continue to work together to increase the numbers of people making charitable bequests, aiming to attract a higher volume of lower-value legacies. This will be more costly in terms of fundraising.
In spite of the fears about funding, the economic downturn has also prompted innovative thinking and the search for new ways of tackling these contemporary challenges. In addition to many local initiatives, the search for ‘big’ new ideas for fundraising is also on. One example is the proposed Robin Hood tax, a tiny levy on each of the millions of daily financial transactions which could be used for global social and environmental causes.
Social media has also come of age as a fundraising tool. Breakthrough Breast Cancer’s new ‘Too Many Women’ campaign aims to set up an internet-based network of fundraising ambassadors for a kind of viral donor recruitment. The public has tremendous enthusiasm for supporting causes where its heart is touched. The London Marathon, a key vehicle for hundreds of individual and local charity fundraising drives, raised over £47m in 2009. The Haiti Earthquake Appeal raised £94m within a few months.
1. www.wlrstore.com/caritas-data/ charity-market-monitor.aspx
Author: Mark Pincher
Mark Pincher is data editor and development manager for Caritas Data.
Author: Cathy Pharoah
Cathy Pharoah is co-director of the ESRC Research Centre for Charitable Giving and Philanthropy (CGAP) at Cass Business School.
www.cass.city.ac.uk/philanthropy
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