Written evidence submitted by ACEVO, the Association of Chief Executives of Voluntary Organisations and CFG, Charity Finance Group

 

 

DCMS Select Committee

Impact of Covid-19 on DCMS sectors


22 April 2020

 

  1. Introduction

 

1.1   ACEVO is the Association of Chief Executives of Voluntary Organisations. It is a membership body of over 1,400 CEOs and senior leaders of civil society organisations working in England and Wales. Through its network ACEVO inspires and supports civil society leaders by providing connections, advocacy and skills.

 

1.2   Charity Finance Group (CFG) is a membership body for charity finance professionals. Its purpose is to inspire a financially confident, dynamic, and trustworthy charity sector. It does this by championing best practice, nurturing leadership and influencing policy makers.

 

1.3   Civil Society is a broad term that includes registered charities, social enterprises, voluntary groups, community interest companies and other not-for-profit structures. It includes organisations with a turnover of a few thousand per year, and large household name charities. Civil society organisations work on issues as broad as maintaining addressing homelessness and supporting older people.

 

1.4   The link between all civil society organisations is that they exist not for profit in order to deliver social good. In this document we will outline the challenges our members are experiencing and the help they need in order to contribute to the response to the COVID-19 pandemic and continue to be there post-pandemic to make sure communities can thrive, people feel a sense of belonging and everyone is able to access the health and care services they need to ensure their mental and physical wellbeing.

 

2. What has been the immediate impact of Covid-19 on civil society?

2.1   People and communities the sector works with need additional help

 

2.1.1          Civil society organisations are set up to respond to a need that is not being met elsewhere, and should be seen as a partner to the state, working alongside it to make lives better. During this global pandemic when there is varying, and often unprecedented levels of stress on every single person, the need for the services of many civil society groups has significantly increased.

 

2.1.2          Research conducted by the Charity Finance Group, Institute of Fundraising and National Council for Voluntary Organisations within the first two weeks of lockdown measures being introduced found that 42% of civil society organisations anticipated an increase in demand at the same time as a 49% decrease in voluntary income.

 

2.1.3          Since then there have been numerous examples of charities launching emergency appeals to respond to increased request for their help combined with the drop in income (see section 2.3 for detail). Examples includes appeals by Women’s Aid, Samaritans, Parkinson’s UK, Tiny Tickers, Bliss and East Anglian Air Ambulance  which launched an emergency appeal to cover the cost of additional PPE.

 

2.1.4          After 5 weeks of campaigning by the sector the chancellor announced a £750m relief fund on 8 March, £370m is to be distributed through the National Lottery Community Fund and £360m through government departments. The £360m through government departments includes £200m specifically for hospices, leaving £160m to be distributed through all government departments. The process for charities to apply for grants and the criteria that is to be used to award funds has been opaque. This has highlighted an existing problem of the need for greater transparency and clarity in government grant making. 

 

2.1.5          Civil society has not received help comparative to businesses. Tesco alone is set to receive £585m of business rates relief and is reporting increased profits. This comparison is not to imply that Tesco, or any other business should not receive support, but to highlight the unequal way the for-profit and social value sectors have been dealt with during Covid-19.

 

2.2   Substantially reduced income

 

2.2.1         Charities do not operate under a single business model. Different operating models may include a blend of income from investments, grants, contracts, fundraising events, retail, service provision and voluntary donations. Charities which contract for services will typically also rely on other income streams, such as trading and fundraising and will in many cases subsidise the cost of delivering the contract through other income.  A recent CFG survey found that the median surplus (income less total costs) on service agreements or contracts as a percentage of income from these is minus 3.5%. 

 

2.2.2         Like many other sectors, income came to an abrupt halt in mid-March for many civil society organisations. For years, not-for-profits have been encouraged by government policy to be more ‘business-like’ in their approach to raising income and to diversify income streams, including by raising funds for charitable work through activities such as charity retail, renting office/conference space, delivering training, selling products. But while means of generating income stopped overnight, the overheads of many of these activities remain and work delivering public benefit increased substantially (as discussed in 2.1).

 

2.2.3         As many people face financial uncertainty it is understandable there has also been an impact on giving via direct debit. Traditionally giving via direct debit is one of the most stable income streams for a charity, but research by Rapidata found that direct debit cancellation rate for March 2020 was 41% higher than in March 2019. The cancellation rate is higher than levels experienced at the height of the recession in 2008/9.

 

2.2.4         Face to face fundraising has significantly reduced as have a number of fundraising events that usually generate substantial sponsorship for charities. The postponement of the London Marathon, which usually generates £66 million, is the largest single event that has been delayed but there are a large number of fun runs organised for the Spring that have also been permanently cancelled and therefore the income is lost, not deferred. There is also the possibility that some level of social distancing will still be in place later this year and even those events that have been postponed will be cancelled entirely.

 

2.2.5         Charitable trusts and foundations are playing their part by stepping up but alone they will not be able to make-up the shortfall in other income streams. Foundations distribute in the region of £3bn annually but have limited capacity to increase this total to respond to the crisis, particularly as endowment values have slumped with the stock market. Charities are facing increased demand for support and assistance, which means increased costs, so there is not a ‘like-for-like’ replacement. While some trusts and foundations can draw down or have expendable endowments, many others have permanent endowments. Many foundations are also bringing forward funding that would have been available later in the year and focusing on COVID-19 response, meaning that long term sustainability has been affected.

 

2.2.6         Charities are having to make use of their reserves and these are being rapidly used up. Reserve levels are based on risk and on average are set at around three months of usual operating costs. We are not in usual times, with major income sources stopped overnight, the value of investments plummeting and demand increasing. Reserves are not all held in liquid assets as they are held for different purposes by different elements of the sector and cannot be rapidly accessed.  Reserves may also include endowments - in these cases the income from the endowments is used to deliver charitable activity (often through grants). Those with once healthy free reserves are seeing those resources rapidly depleting and their financial resilience eradicated.

 

2.3   Adapting to changing circumstances

 

2.3.1         Many charities providing frontline care for at risk groups, including charities providing frontline health and social care services, have experienced challenges obtaining personal protective equipment (PPE). In the early stages of the lockdown Social Enterprise UK received reports from some members that they were excluded from the national supply of PPE. On 1 April 2020 Hospice UK reported that many hospices were running ‘dangerously low’ on PPE and staff were being left at risk of COVID-19. As seen in paragraph 2.1.3, East Anglian Air Ambulance launched an emergency fundraising appeal to cover the additional cost of PPE to its teams.

 

2.3.2         Staff and volunteers working on the frontline will need emotional, and in some cases psychological support to help them process the trauma they have experienced. That trauma could come from not being with family members that have been sick or passed away, from unmet support during the crisis while services have been interrupted, and for those who have worked on the health and social care frontline. Some charitable NHS trusts will be able to access the donations generously given to NHS Charities Together, but many others will not and they should not be left behind when the pandemic passes.

 

3         How effectively has the support provided by DCMS, other Government departments and arms-length bodies addressed the sector’s needs?

 

3.1   Civil servants across government departments have been working tirelessly to try and solve the issues that have been raised with them by their stakeholders. However, unnecessary bureaucracy and a lack of understanding about the economic and social value of not-for-profit organisations and the complexity of their operating models has meant the majority of measures introduced by the government have not been fit for purpose for charities.

 

3.2   Civil society infrastructure bodies first asked for support for the anticipated impact of COVID-19 on 10 March in a letter to the chancellor ahead of the Spring Budget [see Annex A]. When the scale of the impact of the pandemic became clearer, civil society groups communicated the impact to DCMS and Treasury. Charities were repeatedly told details of measures would be released imminently but it took six weeks before they were announced, and at less than one quarter of the £4.3bn that had been requested to stabilise civil society during the first quarter of the lockdown situation.

 

3.3   Delays in announcements, and in distributions of funds have caused unnecessary challenges for those working to coordinate the relief effort. At a time when over 750,000 people have signed up to volunteer, in order to survive the crisis, charities were having to furlough experienced volunteer managers and community organisers that could have helped place new volunteers and provide safeguarding training. This means that while the country now have a generous supply of volunteers, their deployment has been seriously hampered.

 

3.4   The Coronavirus Job Retention Scheme (furlough), while of good intent and helpful to many pubs, cafes and businesses and charity retail operations that have to mothball, is not helpful for those civil society groups that need to mobilise or scale up activity in response to increased demand.  Many charities are using the scheme but the level of take up does not necessarily reflect a reduced demand for services.

 

3.5   A recent CFG survey has found that amongst charities using the scheme, the median percentage of staff that have been furloughed is 50%, resulting in a significant contraction of service delivery and function for their beneficiaries, and that of these staff, half could be redeployed in other roles in the charity were this permissible.  

 

3.6   Civil society organisations have requested changes to the furlough scheme that would better suit work being delivered for public benefit. One example is to allow organisations with a charity number to claim the furloughed wage for staff still delivering services and support (see section 7 for all recommendations).  This would better fulfil the aim of the scheme as a Job Retention Scheme for the charity sector and limiting it to public benefit entities would reduce concerns of fraudulent use of the scheme.

 

3.7   The Coronavirus Business Interruption Loan Scheme (CBILS) does not work for most charities because of the uncertainty regarding trading and definition of public funding. Research by the Charity Finance Group found that amongst respondents, 92% of charities that applied for the CBILS had been rejected.

 

3.8   In addition, the CBILS interest rates after the initial 12 month interest free period are not capped and therefore could place charities in further debt as income is unlikely to resume at the level of the previous year in 12 months. The scheme could be changed to clarify that trading will include all income irrespective of intention to generate ‘profit’ and that public funding does not include funding from the National Lottery Community Fund. Banks could also be required to cap the interest rates after the initial 12 month interest free period.

 

3.9   The small business grant scheme is not eligible to charities in receipt of charitable rate relief. This could be changed simply by making charities in receipt of charitable rate relief eligible for the scheme.

 

  1. What will the likely long-term impact of Covid-19 be on the sector, and what support is needed to deal with those?

 

4.1   Like most sectors, civil society will see organisations close permanently. Some of those closures have happened already, some will happen in the coming weeks and some will happen later this year. It is likely that it will take some time for finances of many charities to return to the levels of last year, and those using reserves to survive now will be less resilient to weather future uncertainties, including potentially a second wave this winter.

 

4.2   The most important impact of a civil society organisation closing is that it is no longer there for the communities it serves. It is not dramatic to state that this is likely to result in lives being lost, especially when considering the role charities have supporting the most marginalised communities furthest away from the state.

 

4.3   The secondary impact is on jobs. Just one part of civil society, registered charities, employ 866,000 people (NCVO almanac 2019). This is more than the number employed in agriculture (477,00 people, Defra 2018), almost four times the number of police officers in England and Wales (124,784, Office for National Statistics 2019), and equivalent to the number of people employed in the wider automotive industry (823,000, UK Automative Industry).

 

4.4   Please see section 7 for our full recommendations to reduce the outlined risk.

 

  1. What lessons can be learnt from how DCMS, arms-length bodies and the sector dealt with Covid-19?

 

5.1   After initial frustration from many sector leaders towards the Charity Commission for some insensitive communications about serious incident reporting, for which the Commission later apologised, the working relationship has been open, honest and helpful. We hope this will continue in the future.

 

5.2   Policy relationships between DCMS, civil society and Whitehall need to be strengthened. There was a lot of time spent in the early days of the pandemic sharing evidence about the economic and social value of civil society, this should be knowledge that exists within the Treasury already, otherwise the value of the sector cannot reach its full potential. 

 

  1. How might the sector evolve after Covid-19 and how can DCMS support such innovation to deal with future challenges?

 

6.1   Transparency in government grant-making is a challenge which has been thrown into relief by the crisis. Treasury in particular, and government departments more widely, do not have a strong track record in delivering grants effectively. The money that has been announced by the chancellor is to be divided between government departments which each have their own processes. These will need to be researched and communicated to prospective applicants at short notice. It also does not seem possible to collate the data to find out who has received funding making it challenging to assess if it has been distributed equitably and fairly. It would also be helpful to know where government grants are being used so that charitable foundations could see where need has not been met.

 

6.2   There have been ongoing conversations about the need to support investment in technology in civil society for some time, but the pandemic has made it clear that digital capability is a necessity for organisations of all sizes. Support for embedding and expanding good digital practice demonstrated through COVID-19 would be welcome.

 

6.3   It has become apparent from discussions since the outbreak that there are some knowledge gaps in central government about the economic and social benefit of civil society. When the Office for Civil Society was moved from the Cabinet Office to DCMS many expressed concern that civil society, whose work is relevant to all government departments, would become a periphery interest. The challenges civil society organisations have faced getting their concerns addressed indicates that this concern has become a reality, and that infrastructure bodies need to work more closely with DCMS to ensure the needs of the people the sector works with are met.

 

  1. Summary and recommendations

 

7.1   The relationship between central government and civil society needs to be strengthened so that the civil society is seen as a partner necessary to the social and economic success of the country.

 

7.2   Ensure distribution of government grants follows principles for good grant making, including being distributed fairly, transparently and equitably.

 

7.3   Create a civil society ‘stabilisation fund to allow as many civil society organisations as possible to continue to be there for communities during and after the pandemic.

 

7.3.1          In relation to Covid-19 specifically the priority is securing at least a further government grant funding to stabilise civil society groups, enabling as many as possible to continue to deliver work for the public benefit both during and after the crisis.  The original loss of income to the sector was calculated to be £4.2bn over a 12-week period.

 

7.3.2          Funding for a stabilisation could include contributions from a number of currently untapped resources. There are estimated millions locked up in moribund charities. Government could legislate to (a) amend their charitable purposes to cover all purposes charitable under the law of every part of the United Kingdom; (b) require trustees (and banks) to identify the funds held; (c) require the funds to be transferred to the National Emergencies Trust (or other distributor) for the purpose of protecting charities affected by the COVID-19 pandemic; (d) prohibit any person from bringing any claim.

 

7.3.3          In addition, the National Lottery Community Fund is owed £675m in proceeds from land sales in the Olympic Park. HMT could bring this money forward, acting as guarantor.

 

7.4   Amend existing schemes so that charities can become eligible

7.4.1         Coronavirus Job Retention Scheme: Relax the volunteering rules to enable charity workers to be redeployed within the charity as a volunteer without undermining eligibility. This would only be applicable to employees of registered charities where other roles are directly meeting the charitable objects, delivering public benefit.  We are aware that an exception has been granted for a zoo in Bristol to allow furloughed staff to volunteer to meet the zoo’s statutory duties to care for animals. This precedent should be extended to charities providing crucial services for people.

 

7.4.2         Enable not-for-profit groups that cannot furlough staff but who have suffered a reduction greater than 30% of income to claim loss of income based on last three years’ accounts (and budget for current financial year) based on the model adopted in Canada. 

 

7.4.3         Coronavirus business interruption loan scheme : Clarify that trading will include all income irrespective of intention to generate ‘profit’ and that public funding does not include lottery funding. Enforce banks to cap the interest rates after the initial 12 month interest free period.

 

7.4.4         Small business grant scheme : Allow all charities in receipt of charitable rate relief to be eligible for the small business grant scheme and work with Local Authorities to enforce the correct application of the Expanded Retail Discount and Retail, Leisure and Hospitality Grant schemes.  We have many reports of local authorities not granting the Extended Retail Discount or the Retail, Leisure and Hospitality Grant where we believe charities are eligible.