National Council for Voluntary Organisations

The Third Sector: recession and beyondChildren’s Hospices UK | Chair and CEO Forum | January 2010

Karl WildingNCVO Research and Foresightwww.ncvo-vol.org.uk/research www.3s4.org.uk

Issues for discussion

• How did we get here? The Nice Decade

• How badly has the recession impacted upon the sector?

• And what financial challenges lie ahead, post-recession?

How did we get here?

The Nice Decade

The Sector’s income sources

Statutory sources & Lottery: 36%

The public (giving and purchases): 37%

Other VCOs: 11%

Private Sector: 4%

Interest & Dividends: 12%

Earned income: the route to resilience?Types of income - £billions

How badly has the recession impacted upon the sector?

Recession timeline (GDP growth)

-6

-5

-4

-3

-2

-1

0

1

2

3

4

Sept 06

Dec 06

Mar 07

Jun 07

Sept 07

Dec 07

Mar 08

Jun 08

Sept 08

Dec 08

Mar 09

Jun 09

Sep 09

Pe

r c

en

t c

ha

ng

e, y

ea

r-o

n-y

ea

r

Quarter

June: Angela Smith appointed

Aug: Credit crunch begins

Recession

2nd recession summit

1st recession summit

Feb: Real Help for Communities announced

Oct: Kevin Brennan

appointed

July: Phil Hope

appointed

June: Brown new PM

Dec: Interest

rates 2%

Nov: VAT cut to 15%

Dec: End of recession

Oct: Icelandic banks fail

April: Spending period 2008-11

begins

Quarter 2: Unemployment

starts to rise

Sept: Northern Rock fails

Dec09

1 in 4 report significant concerns: local surveys report greater problems

What has been the overall impact of the economic downturn?Charity Commission recession survey, August 2009

(D/Ks excluded)24

34

30

39

28

16

22

38

38

21

6

7

11

6

7

-54

-36

-20

-16

-43

-70 -50 -30 -10 10 30 50 70 90

>£10k

£10-£100k

£100k-£1m

£1m+

All

Not significant Significant Very significant Not at all

Sept 0826%

Jan 0925%

Aug 0928%

Is there a change?% reporting a significant/ very significant impact

Many charities are reporting no change in most income streams

Has income changed over the last 12 months?Charity Commission recession survey, August 2009

(D/Ks excluded)

11

18

16

13

17

19

6

70

66

60

56

50

46

23

13

12

22

26

22

31

69

0 10 20 30 40 50 60 70

Public sector

Mem'ship fees

Legacies

Fundraising

Trading

Grantmakers

InvestmentsDecreased

Same

Increased

Investments hit widest: but

only 8% of sector

income.

Majority report no change in

income

Charitable giving dipped by 11% in 2008/09

£29

£33£31

£10 £11 £10

£0

£5

£10

£15

£20

£25

£30

£35

2006/7 2007/8 2008/9

£/mon

th

Mean Median

Total £10.3bn

Total £11.2bn Total

£9.9bn

Philanthropy dipped in 2007/08:

£ million+ donations fell in value from

£1.6bn to £1.4bn (13%)

Individual giving in the USA fell 6.3%

in 2008

Source: CAF/NCVO

Looking ahead

VCOs are still low on confidence: but fewer expecting the situation to worsen

Sector leaders’ net confidence has been negative for 5 quarters, but is improvingConfidence in future prospects: net balance, 2008-09

-2

-5

-7

-9

-9

23

40

45

-20 -10 0 10 20 30 40 50

2009 Q4

2009 Q3

2009 Q2

2009 Q1

2008 Q4

2008 Q3

2008 Q2

2008 Q1

31%Worsen

40%No change

29%Improve

2009 Q4

Rec

essi

on

Source: NCVO

Many are expecting no change in income in the short term…

5

20

11

7

8

9

17

67

67

63

58

57

55

54

18

8

17

25

30

29

14

0 10 20 30 40 50 60 70

Public sector

Grantmakers

Fundraising

Trading

Mem'ship fees

Investments

Legacies

Decrease Same Increase

Will income change over the next 12 months?

Charity Commission recession survey, August 2009

(D/Ks excluded)

National Council for Voluntary OrganisationsThere is some evidence of increased collaboration, but few mergers

…though perceptions of the medium term are more pessimistic.

It’s the State, Stupid…

Resources clearly matter

• Service delivery under contract has driven greater dependency on statutory income…

• …whilst local government has continued to be the most important statutory funder of the VCS.

The growth of statutory funding The importance of local government funding (£bn)

Some organisations rely heavily upon statutory income…but most don’t.

Relative dependence upon statutory income: VCOs categorised according to how much of their income is from statutory sources, 2006/07

There is significant variation in the local relationship

Proportion of VCOs in each local authority that receive statutory income, 2006/07 (%) (quintiles)

Do the statutory bodies in your local area influence your success?

How did local govt respond in 1991-93?

Yes33%

No61%

DK6%

• Funding decisions (amounts; timing; distribution) of local councils likely to have a big impact on the VCS

38

20

18

16

13

5

0 10 20 30 40

Cut funding

Look on charity as an extension of social services

Moved us lower down list of priorities

Became more sympathetic

Moved us higher up list of priorities

Increased rent/charges for facilities

Has your relationship with local government changed during the recession?Source: CAF

If Yes, how has your relationship with local government changed during the recession?Source: CAF

Cuts in govt funding will not hit the VCS uniformly

Funding source is variable between sectorsFunding source, by sector, 2008

The 40,000 organisations that receive government funding are concentrated in subsectors such as employment, advocacy, umbrellas, education and social services.

Most subsectors are poorly capitalised – those with assets appear exceptional Reconfiguration appears most likely in mid-sized organisations.

…whilst assets are not a secure basis for manyNet assets, expressed as number of months’ expenditure

Is the sector facing a perfect storm?

• Falling charitable giving from individuals and corporates

• Likely cuts in discretionary funding

• Low reserve/asset levels

• Increased demand for services

• More intense competition from other charities

• More intense competition from other corporates

• Adaptability a defining characteristic: times are always tough

• Giving will recover

• Volunteer input already increasing

• Many not dependent on govt income

• Some reconfiguration/ collaboration will generate efficiencies

• The sector is in better shape than in the last recession

Yes No

Critical uncertainties?

Demographic impact & service provision

• Is increasing demand for services best met through VCOs providing core services or ‘nice but not necessary’ top-ups?o Is the VCS a substitute or a complement?

• Is the role of the local VCS more likely to be around voice, rather than choice?o If so, how will this be resourced in the Perfect Storm scenario?

• Will large, national charities or corporates provide the bulk of services to local communities?

Critical uncertainties?

The relative roles of individuals, the state and civil society

• Will the state do less, or do things differently, or both?

• Is the VCS a substitute or a complement for the roles that local authorities currently provide?

• If more risk and responsibility for welfare rests with the individual, how will VCS-local government partnerships support this?

There is enough time to plan…

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