Written evidence submitted by NCVO
About NCVO and the voluntary sector
The National Council for Voluntary Organisations (NCVO) is the largest representative body for charities and voluntary organisations in England. NCVO has over 15,000 members ranging from large ‘household name’ charities to small community organisations. NCVO is also the national body for volunteering in England.
Our diverse community of member organisations makes up a third of the voluntary sector workforce in England. We help them thrive by providing expert support and advice, by saving them time and money, and by keeping them up to date with the news that affects them.
In 2016/17, there were 166,854 voluntary organisations in the UK. Smaller organisations make up the vast majority (82%) of the sector. They include micro organisations, those with an income under £10,000, and small organisations with an income between £10,000 and £100,000. In 2016/17, the voluntary sector’s total income was £50.6bn. £22.9bn (45%) of this came from the public, while £4.8bn came from investment income. Both of these income streams have been immediately impacted by the coronavirus emergency, while pressure on other sources of income such as government contracts and grants (£15.8bn) is expected in the coming weeks.
Voluntary organisations play a vital role in improving our society and make a huge contribution to the UK economy. The voluntary sector contributed £17.1bn to the UK economy in 2016/17[1], representing around 0.85% of total GDP. The social services subsector alone contributed £3bn during this period. Voluntary organisations help mobilise large numbers of people across the country to give time to good causes. An estimated 11.9 million people formally volunteered at least once a month in 2017/18. The most recent figures from ONS for 2016 estimated the value of voluntary activity in the UK to be £23.9bn[2].
Just under 870,000 people worked in the voluntary sector in the UK in June 2018, equivalent to 2.7% of the UK workforce. For comparison, the voluntary sector workforce is just under 60% of the size of the NHS workforce, (the single largest employer in the UK with a headcount of around 1.5 million). 46% of these staff work in a social care setting. Another 13% work in education services and 5% work in health[3].
NCVO’s definition of charities excludes private schools, hospitals and government bodies with charitable status. When these are discounted, the voluntary sector spent £49bn in 2016/17, £7bn of which was on grantmaking (e.g. to universities for research), leaving an operating expenditure of around £42 billion. £18.3bn (44%) of the sector’s operating expenditure is spent on salary costs, with some subsectors devoting a significantly higher proportion of their expenditure to staff costs. For example, organisations operating in health and social services spent over 50% of their expenditure on wages. After grantmaking and staff costs, charities spend money on goods and services, just like any other business. This includes buildings and utility costs, costs pertaining to trading, and taxes and licencing costs.
Financial Impact of COVID-19 on charities
Charities and volunteers are stepping up to help communities deal with the devastating impact of the coronavirus. Given the scale of the challenge facing the country and the widespread social and economic impact, the help they can provide at this time is invaluable. Their specialist knowledge and expertise will help people in need to respond and adapt to the impact of coronavirus – either directly by supporting the health and social care system or indirectly by supporting those affected by the enormous economic and social consequences of coronavirus.
However, charities across the country are facing imminent collapse as fundraising income dries up. Charities, like businesses, are experiencing significant financial and service delivery pressures because of coronavirus. Payroll, mortgage payments, rental payments and tax are just some of the regular expenditure charities continue to be liable for. In parallel, income is falling. Community and voluntary sector organisations are also on the frontline of supporting vulnerable people and will experience a variety of impacts related to the crisis. Some are seeing huge increases in demand for services, with 43% of charities predicting an increase in demand for their services, according to a recent survey. Many service models will need to rapidly change as organisations stop bringing people together and move to ensuring isolated people receive support.
Our latest information suggests that charities will lose out on around £4billion worth of income over the next three months. In particular charities are losing out on income because of the cancellation of fundraising events, a loss of trading income, and lower investment income.
Nearly every area of fundraising will be impacted, with many charities already experiencing loss in cash donations of hundreds of thousands and, in some cases, millions of pounds. This directly affects and interrupts cash flow and the ability for charities to deliver their existing services, or do more in response to the crisis. In the short term, the cancellation of fundraising events and community activity (both large-scale such as the London Marathon, and smaller events by individual charities) have left a big gap in charity finances. Some of this income will be deferred (for example the London Marathon has been postponed to later this year), but even deferred activity will then impact charities’ Christmas appeals and later campaigns.
Put simply, the vast income that has been lost already, and which will be lost in the months ahead, will not be recovered. As well as cash donations, fundraising activity that brings in regular and ongoing support (e.g. direct debits) is being severely impacted.
Public fundraising (such as door to door and face to face fundraising) are the mainstay for many charities to find new supporters. With the cancellation of much of this activity, charities will have fewer regular supporters this year, costing them millions of pounds of income, as well as severely disrupting the fundraising environment with many fundraising agencies and partners not able to stay afloat.
Voluntary sector organisations have seen an impact on trading. Bookings for accommodation, training and services have been cancelled and charity shops have been forced to close. Many organisations have a diverse range of trading activities from community cafes to room and space hire – all of which have been interrupted and will also be impacted by the wider economic shock we are set to face.
Contractual Income
Wider economic impacts
Voluntary sector investment portfolios have already been impacted by the fall in the stock market. This includes charitable foundations, which will have smaller funding pots available to charities in the medium term. For most charities, cashflow and liquidity will be the primary concern in the short-term. A survey of charities undertaken by CFG, NCVO, the IoF and PWC has found that 44% of charities surveyed are already experiencing issues with cashflow, with a further 46% expecting to experience this in the near future. Almost half (45%) are unable to cover their payroll, and a third unable to pay their bills, rent, and mortgage. Furthermore, about one quarter (24%) of charities don’t hold any reserves. The levels of reserves differ notably depending on the size of organisation, and its area of activity. But all organisations, including large household name charities, have expressed concern about how their reserves are being depleted rapidly due to the unprecedented challenge that coronavirus presents.
How charities are responding to COVID-19
The voluntary and community sector is made up of a diverse range of organisations in terms of funding sources, services provided, level of income, level of reserves and staff and volunteer numbers. Charities across the board are currently experiencing increased demand due to the impact of the coronavirus. Many of these organisations are now working on the front line in the fight against coronavirus, complementing the work of the NHS and directly contributing by tackling the impacts of the pandemic on the most vulnerable. These organisations include hospices and care homes looking after the elderly and shielded, specialist schools and family support charities, community transport providers, charities supporting volunteers in health services, community organisations arranging for food provision to those in poverty and organisations attempting to deal with the social and economic impacts of isolation measures, including mental health and domestic violence charities. If these organisations close their doors or furlough staff, the result would be increased pressure on the NHS and other public service providers.
In areas from health, education and food provision to community cohesion, loneliness and housing, the services charities provide help to support and in places prop up the public sector. Without the work of charities, the public sector would face extreme strain in delivering support to those who need it most. In particular, small local charities currently facing major financial difficulties often provide bespoke services to meet the needs of their local communities; it is through their expertise that they are able to support communities around the country. Furthermore, many local authorities (already facing financial struggles) commission charities to carry out services. If these charities become insolvent in the coming weeks and months, such services will either have to be delivered by the local authority or, more likely, withdrawn. It’s not just the service delivery that would be lost - often charities provide an important link to the local community that will be very difficult to replace: local authorities would be losing partners that are key to designing good services, not just delivering them.
How existing measures for businesses are working for charities
When the chancellor announced the first swathe of financial measures, the clarification that charities are also eligible was welcome. However, the benefit for charities is likely to be very limited.
The Coronavirus Job Retention Scheme will only make a marginal difference to the fixed costs of most charities. Some charities may be able to lay off shop workers and fundraisers, but these amount to a fraction of charities’ total costs. The scheme enables employers to have 80% of a staff member’s salary covered by the government if they are furloughed – that is, if they are sent home and stop working. However, the majority of charities and voluntary organisations deliver services and offer support which cannot cease for three months in the way that a bar or cinema can. They must remain open to support the public, and therefore expenditure associated with them will continue. While some charities may be able to close temporarily, much of the sector needs to continue supporting people and communities as they did before. Furthermore, many organisations have already seen an increase in demand for their services as a result of coronavirus. This is likely to increase over the coming weeks, as more people are required to self-isolate and individuals identified as vulnerable and at risk require additional support.
As employers and service delivery organisations facing business interruption, charities should be eligible to benefit from the other measures announced by the Chancellor for businesses. The British Business Bank has confirmed that the one of the eligibility criteria for the Coronavirus Business Interruptions Loans Scheme announced by the Chancellor is to generate more than 50% of turnover from trading activity. Based on our research, this would mean the majority of voluntary organisations would be excluded from the scheme; only a small fraction of charities generate their income through trading with the public. The announcement on 3 April that applications will not be limited to businesses that have been refused a loan on commercial terms is welcome, as is the removal of the requirement for owners to guarantee loans with their own savings or property under the scheme.
However, there are other reasons why loans are not appropriate for charities. Many charities’ financial models preclude them from taking on additional debt at such a precarious time. It is crucial that charities are able to not just support communities through the immediate crisis, but also come out the other side in a position to play a full and active role in rebuilding society. Saddling organisations that do not generate profit like private sector organisations with unsustainable debt accrued to see them through the crisis would hugely hamper their financial sustainability and ability to deliver public benefit when the country emerges from the Covid-19 emergency. This is especially concerning as the government will only cover interest payments and fees after the initial 12 months of the loan.
We estimate that charities will miss out on a minimum of £4.3bn of income over the coming 12 weeks, though this is a conservative estimate and the figure is likely to be far higher. The figure has been calculated using initial survey feedback from charities about their experiences over the past week, and NCVO’s Almanac which provides authoritative data on the sector’s finances. It assumes that government income remains stable, but there is no guarantee of this, particularly where payment-by-results contracts are concerned. The estimated £4.3bn covers normal expenditure and does not include any extra costs related to the pandemic or responses to it.[4]
NCVO’s response to the government’s charity support package
NCVO welcomes the government’s attempt to support charities and their work during these difficult times through a £750m support package.
However, what now needs addressing is how the money will be distributed. Government has stated that it aims for charities to receive funding in the coming weeks. In order to do this, government departments must identify priority cases immediately, although we are awaiting details about what the criteria for prioritisation or measurement will be. For example, there is currently no clarity on what, if any, consideration will be given to equality and equity, including the need to fund organisations that represent marginalised communities. Furthermore, clarity is required on how the fund will address significant regional inequality across the UK. Some poorer areas of the country have populations that are more reliant on charities and will feel the impacts of a reduction in services far more than wealthier parts of the country.
Alongside this, charities should be able to apply for National Lottery Community Fund (NLCF) grants within a similar timescale. However, there is also no clarity on what criteria will be used for these grants, and whether the focus will be on increased need, income loss or both.
Overall, the £750m pledged to charities is a welcome and important start: charities will make good use of them in contributing to the national effort. Whilst we are acutely aware of the scale and unprecedented nature of the crisis facing government, we are concerned that this amount is simply not enough for our sector. With charity shops shut and fundraising events cancelled, it does not come close to estimated £4bn in 12 weeks that charities stand to lose as a result of the crisis.
The Institute of Fundraising’s survey of charities, in partnership with NCVO and the Charity Finance Group, found charities expecting to lose nearly half of their fundraised income, even as demands placed upon many of them soar. Households names such as Cancer Research UK and Macmillan Cancer Support anticipate losing over £200m between them. Others such as Scouts and Mind expect to lose millions over the next few months and are severely concerned about their continued ability to exist in anything resembling their current form, just as they are needed more than ever.
Put simply, the government’s intervention will not be enough to prevent good charities around the country from closing their doors. Many of the charities which do survive will look very different in a few months’ time, with severely reduced capacity to provide support that people rely on at a time when their contribution to recovery will be vital.
Charities need to be able to support people who need it most – from housing support to hospices, mental health support to bereavement counselling and air ambulances to meals for people who are self-isolating. They cannot do this if they have to suspend their work or worse, close altogether. NCVO will continue to push for the support needed so charities can keep serving the public.
[1] According to the estimation method developed by NCVO and ONS
[2]https://www.ons.gov.uk/economy/nationalaccounts/satelliteaccounts/articles/householdsatelliteaccounts/2015and2016estimates
[3] https://data.ncvo.org.uk/workforce/#by-subsector
[4] Due to the fast-changing nature of this crisis, these figures are preliminary and may need to be increased substantially as the economic impact hits home for charities.