November 20, 2014 : Ilse Mackinnon

Snapshot of charity funding reveals big freeze

Rhetorical question: can something really be called a ‘snapshot’ when it takes five months to produce?

Every two years SCVO data elves analyse hundreds of third sector annual accounts to produce a snapshot of the sector’s finances and analyse the key trends in the sector’s income.

This financial data, alongside the narratives in trustees’ annual reports, gives us a real insight into the financial health of individual organisations and the sector as a whole. It lets us see exactly what has been happening in terms of funding, where money is coming from (or not) and where it’s going.

I’ve personally analysed thousands of charity accounts during my time as research officer here at SCVO. I expect it to take a while. I expect it to be impossible to assign some funds to the correct funder. I expect it to be complicated.  I even anticipate the occasional tension headache that accompanies staring at thousands of small numbers on a computer screen.

What I did not expect was that the review of funding in 2013 would throw up major shifts in the sector’s income sources and a complete reversal of previous trends.

First, let’s take the overall flat-lining of the sector’s income. For almost a decade I’ve been producing graphs showing a lovely upwards curve year on year. What we’re now seeing is that curve flattening out and the sector’s income plateauing. Some organisations have seen significant growth while others have seen income shrink, but mainly budgets have been frozen. On average, organisations have seen their income grow by only 0.8% in the last year, and when we take inflation into consideration that’s actually a drop in real terms.

Secondly, there has been a huge drop in income from public sector funders. Despite all the talk of cuts, for some reason it still came as a shock seeing it in black and white in the accounts:

  • Local authority income is down by £100 million
  • Other public sector income (e.g. from Scottish Government, UK Government, NHS, Non Departmental Public Bodies) is also down by £100 million

That’s a whopping £200 million loss to the sector in cash terms at a time when costs are rising and demand has never been as high.

You can really see the public sector’s contribution to the overall income nose-dive in the graph below:

share of funding graph

That’s a whopping £200 million loss to the sector in cash terms at a time when costs are rising and demand has never been as high.

On a more positive note, the accounts show the sector rising to the challenge. Organisations are revamping business plans, developing new delivery models, setting up funding sub-committees, sourcing new income streams, and investing in trading activities. This hard work has paid dividends for many:

  • Income from sales and trading activities is on the rise, increasing by around £100 million last year
  • More surprisingly perhaps, given the recent recession and cost of living challenges, we also saw donations from the general public increase by £100 million

Both these areas – trading and donations – will be looked at in more detail in special briefings in the coming months.

For now let’s celebrate the positive steps the sector has taken to mitigate some of these public sector cuts. But there are more cuts to come. Up until now most funders have tried hard to avoid actual cuts to budgets. Grants have been awarded, albeit without inflationary increases. That could be about to change for the worse.

One of the problems with analysing charity accounts is that we’re always looking backwards. Most 2014 accounts haven’t yet been made publicly available. Christmas is still a while off but a crystal ball is top of my wish-list – we need even more up-to-date intelligence to help us meet the opportunities and challenges of 2015.

Important: Opinions expressed by bloggers are their own and don't represent those of the Scottish Council for Voluntary Organisations.

by Ilse Mackinnon