This blog is based on an article in the Journal of Social Policy by David Clifford, Diarmuid McDonnell and John Mohan. Click here to access the article.
What have been the financial implications of the COVID-19 pandemic for the charitable sector? So far – despite consistent and widespread concern about the recent challenges faced by the charitable sector – very little research has examined the impact of the pandemic on the income of charitable organisations.
Therefore, to help fill this gap, our newly published article in the Journal of Social Policy uses administrative data from the Charity Commission to describe trends in the income of registered charities in England and Wales.
The article assesses the distinctiveness of the financial impact of the pandemic by placing charities’ recent annual income changes within the context of longer-term trends since 1999, in particular contrasting with the 2008 financial crisis and subsequent Great Recession. The analysis makes a number of important contributions.
First, it illustrates the scale of the financial impact of the pandemic on the charitable sector for the first time. The size of the decline in charities’ income is remarkable and therefore worth emphasising: for financial years ending in 2020 the median charity experienced a 13% real decline in their annual income, while a charity at the 25th percentile of the annual relative growth distribution experienced a real income decline of 43%. This new empirical evidence helps to communicate the extent of the challenges faced by the charitable sector.
There has rightly been considerable emphasis on the important role of voluntary action in responding to the pandemic. Charities and community organisations have partnered with local authorities and communities to respond to different types of individual and community needs during the pandemic, relating for example to the access to and affordability of food; to wellbeing, loneliness, social isolation and mental health; and to the provision of support to people ‘shielding’. However the results of this article show that – alongside these prominent examples of voluntary action responding to need – it is important to emphasise the considerable financial challenges that the pandemic has posed for the charitable sector.
Second, it shows how the financial impact of the pandemic on the charitable sector compares to the financial impact of the Great Recession and subsequent period of public spending austerity. The Great Recession and period of austerity led to a sizeable decline in charities’ income. Nevertheless our results show that the impact of the pandemic is of a different scale and nature. In terms of scale, the median annual real decline in charities’ incomes of 13% experienced during the pandemic dwarfs any of the annual real declines in charities’ incomes during and following the Great Recession, which peaked at 4% in 2010 and 2011. In terms of nature, while the defining feature of the pandemic has been the sudden and significant financial shock to charities’ incomes, the distinctive feature of the Great Recession and subsequent period of austerity was rather the cumulative impact of successive years of less sizeable median annual real term declines in charities’ incomes between 2009 and 2014. This article’s results therefore add to a growing body of literature within social policy highlighting the distinctiveness of the implications of the pandemic: compared to the Great Recession and period of austerity, the impact of the pandemic has been distinctive in speed and scale.
Third, the analysis shows that – while the covid-19 pandemic has been pervasive in scope – not all charities have been equally affected. Importantly, it shows that smaller charities, particularly those with an annual income less than £100k, have been the most significantly impacted since they have seen the largest relative declines in income. The results are consistent with literature which predicts that smaller organisations, since they are less able to adopt a variety of adaptive strategies to respond to changes in their environment, may be less resilient during periods of economic and social uncertainty.
Fourth, it shows that the sizeable median decline in charities’ income during the pandemic has been accompanied by a commensurately sizeable median decline in charities’ expenditure. This provides insight into the extent to which the pandemic affected charitable activity – whether through a strategic decision to cut expenditure in response to a fall in income, and/or through enforced expenditure reductions because of the ways in which public health measures affected charitable operations.
The article illustrates the importance of further developing and improving the nascent voluntary sector data infrastructure. Without appropriate data, there is a lack of a ‘guiding hand’ for government, donors and funders about where reduced resources might be best allocated during crisis periods. Indeed in general quantitative data on voluntary organisations has not been readily available. The shortage of timely statistics about the voluntary sector has provided a barrier to providing effective financial support during the pandemic: while resources have been made available by funders, including government, it has been hard to assess those organisations most in need of support or most exposed to reductions in income. Indeed it is harder for policy makers and funders to develop appropriate support without clear information about the scale of the financial challenge that the charitable sector has been facing. Therefore the analysis in this article – providing the first detailed overview of how charities’ income in England and Wales has been affected by the covid-19 pandemic – is valuable. Further developments in charity data – including the collection of more detailed data on smaller charities, and an increase in the submission of machine readable charity accounts – would be welcome. This would further enhance our ability to understand the financial challenges faced by charities, and therefore our ability to support the charitable sector, during periods of economic and social crisis.
About the authors
David Clifford is Associate Professor at the University of Southampton.
Diarmuid McDonnell is Lecturer at the University of the West of Scotland.
John Mohan is Professor of Social Policy at the University of Birmingham.