This is a briefing paper for the Recession Roundtable "Weathering the economic downturn" held by SCVO on 26th November 2008, which presents intelligence on what previous recessions tell us, early analysis of SCVO members survey 2008, and early analysis of pre-budget report from a sector perspective and a summary of what SCVO is and can ask Government at all levels to do.
What previous recessions tell us
Voluntary organisations growth and decline does not go hand in hand with wider GDP changes over last 60 years, and does not go hand-in-hand with public spending ‘policies’.
In SCVO’s November 2008 member’s survey, a major concern for respondents is the uncertainty of ongoing funding, voiced by both large and smaller organisations.
However, both central and local governments tend to cut funding and practices such as late payments tend to create cash-flow problems. Local government cuts are particularly worrisome for medium-sized organisations (£100k to £1m). Smaller organisations are more likely to involve volunteers and small sporadic grants and therefore less affected, while larger organisations tend to be better diversified and operating over a larger area.
This tallies with SCVO’s members survey which reports higher rates of optimism for the next 12 months amongst smaller organisations than medium or larger organisations. However, a much lower % of organisations feel that the funding environment has improved than was the case in SCVO’s 2007 survey.
Charitable giving comes largely from middle-class professionals, and evidence suggests recessions merely provide a short term slow-down in the long-term historical growth of philanthropy. These slow-downs have a 6-7 month time-lag from the start of the recessions. Also, the mode of giving tends to change – less fundraising ‘events’ like charity balls, and more targeted causes with people focusing more on their own traditional established pet causes. This means that encouraging Government to extend tax efficiency on giving such as Gift Aid and enticements for Substantial donors becomes much more important.
Corporate giving is directly linked to profits, so takes a hit, but is generally a very small part of our sector’s income source (est. 4% UK, est. 0.3% Scotland). The foundations sector in the UK (unlike the US) is too small to absorb recessions. Foundations will continue to operate in the short term, but after a time lag their funding flow slows over the medium-term.
While the sector reports a strong asset-base (£8.6bn in Scotland), they tend to be locked up in charitable trusts and buildings. This means the sector’s reserves will not be strong enough to take a recession hit, especially in the current situation where the recession is investment based.
In a deflationary recession, the labour market slackens and staffing costs tend to decline and staffing is therefore less of a problem. An easing labour market would both place downward pressure on costs and likely lead to fewer skill shortages. On the other hand, there will be potentially much larger pool of skilled volunteers. However, there is no evidence for a link between unemployment rises and increasing motivations to volunteer. Making the best use of volunteering is therefore both a potential but also a task for the sector to develop.
In SCVO’s member’s survey, the second biggest challenge identified by organisations for the coming year (after funding) is managing change – growth, demand and cutbacks
What the Pre-budget report will do for the sector
The Charity Tax Group of which SCVO is a member has analysed the PBR as follows:
The sector is treated as an end-user under EU VAT rules and therefore each year faces an irrecoverable VAT bill in excess of £400 million a year. The Group estimates that the temporary 2.5% cut in the standard rate of VAT will save the sector around £70 million a year.
However, the Group is concerned that the proposed permanent increase in National Insurance contributions from 2011 (0.5%) will adversely affect the sector. This is because the charity sector is very staff intensive and the impact will offset the benefit of the VAT reduction.
CTG has also pointed out concerns that the Government has still not made any announcements about repealing the substantial donors legislation, which is causing some charities to turn away significant donations.
What SCVO is asking Government to do
SCVO is in regular contact with the Secretary of State for Scotland, Jim Murphy and is in contact via the Joint Task Group with the Scottish Government and CoSLA to ensure that the Scottish voluntary sector is supported through the financial crisis. Specifically, SCVO is asking the following.
1) Guarantee bank accounts
SCVO on behalf of the Scottish voluntary sector is currently calling on the UK Treasury and the Scottish Government to provide enhanced assurance that all charity and voluntary sector assets are protected against the effects of the current financial crisis. We believe this special assurance is warranted because of the supportive (and mitigating) role the sector will be best placed to play during the economic downturn, whether in the fields of skills development, employability, debt advice, health services, community education, accommodation or care services.
2) Use newfound influence on the boards of RBS, HBOS and Lloyds TSB
Following the bail-out of the above three major banks, the UK Government will be positioned to have substantial influence over the sponsorship and foundation frameworks of the three banks rescued, particularly as profits return. SCVO recommends following the pre-existing Lloyds TSB Foundation, where 1% of Lloyd TSB’s pre-tax profits are designated and devolved to four foundations matching the four nations. By setting the model from the beginning Government will be able to ensure that all three banks fulfil their Corporate Social Responsibility duties in supporting the sector in Scotland and the other administrations. Given taxpayer ownership of substantial shares of the banks, the nature of this support should be consulted with the sector as currently is the case with the Lottery funds.
3) Commit to resolving contractual barriers to sector funding
SCVO will call on Local Government and the Scottish Government to ensure that the sector’s role in public services is fully utilised and calls on the UK Government to play their part in addressing barriers to funding due to difficulties with the clarity of current guidance for contractual and funding conditions. These should be resolved as quickly and practically as possible in preparation for an impending recession. This will require Governments at all levels to commit to redouble their efforts with sector representatives to ensure that our concerns and opportunities, as collated in the Fairer Funding Statement and ongoing discussions through the SCVO/CoSLA/SOLACE/Scottish Government Joint Task Group, are fast-tracked.
4) Boost the use of Gift Aid
UK Government must work with its partners including the devolved administrations to help counteract the likely reduction in general public donations and to sustain the sector through the economic downturn. SCVO would like to highlight calls from the Charity Tax Group and other UK colleagues for the UK Government to enhance support for Lifetime Legacies and Substantial Donors, and to promote the take-up of Gift Aid, by allowing an attributable percentage of street can and associated collections to attract Gift Aid by default.
There are now potentially other calls to be made around dealing with pensions, the sector’s role in the delivery of alternative options within employment and welfare reform, and in proposals for different funds to aid cash flow, resilience and facilitate merger.
The Weathering the Economic Downturn roundtable meeting will be an ideal occasion to identify and sketch out these concerns together.
Ruchir Shah, SCVO.
For further information on the Financial State of the Sector (December 2009), please click here