Discussion

This paper’s analysis makes a number of important contributions. First, it illustrates the scale of the financial impact of the pandemic on the charitable sector for the first time. The size of the decline in charities’ income is remarkable and therefore worth emphasising: for financial years ending in 2020 the median charity experienced a 13% real decline in their annual income, while a charity at the 25^th percentile of the annual relative growth distribution experienced a real income decline of 43%. This new empirical evidence helps to communicate the extent of the challenges faced by the charitable sector. There has rightly been considerable emphasis on the important role of voluntary action in responding to the pandemic. Charities and community organisations have partnered with local authorities and communities to respond to different types of individual and community needs during the pandemic – relating, for example, to the access to and affordability of food; to wellbeing, loneliness, social isolation and mental health; and to the provision of support to people ‘shielding’ (Thiery et al., Reference Thiery, Ballantyne, Cook, Burchell, Walkley and McNeill2020; Thiery et al., Reference Thiery, Cook, Burchell, Ballantyne, Walkley and McNeill2021; Walkley et al., Reference Walkley, Bojke, Howdon, Burchell, Thiery, Cook, Ballantyne and McNeill2021). Kruger (Reference Kruger2020) documents the emergence of local mutual aid groups to respond to community needs. Macmillan (Reference Macmillan2020) emphasises the sizeable response to the call for volunteers to support the work of the National Health Service (NHS) through the Volunteer Responders scheme. There have also been prominent charitable fundraising efforts during the pandemic, including crowdfunding for foodbanks (Taylor-Gooby et al., Reference Taylor-Gooby, Petricek and Cunliffe2021) and the ‘100^th Birthday Walk for the NHS’ by Captain Sir Tom Moore. However the results of this paper show that – alongside these prominent examples of voluntary action responding to need – it is important to emphasise the considerable financial challenges that the pandemic has posed for the charitable sector.

Second, for the first time, this paper shows how the financial impact of the pandemic on the charitable sector compares to the financial impact of the Great Recession and subsequent period of public spending austerity. The Great Recession and period of austerity led to a sizeable decline in charities’ income (Clifford, Reference Clifford2017). This is consistent with both the theory of voluntary sector failure, which predicts that income from charitable donations declines during economic downturns at the very time that social need is greatest (Salamon, Reference Salamon1987; Smith and Grønbjerg, Reference Smith, Grønbjerg, Powell and Steinberg2006), and with the implications of deep cuts in public spending given that voluntary organisations now play a greater role in public service delivery than ever before and are therefore more reliant on government funding (Allard, Reference Allard2009). Nevertheless this paper’s results show that the impact of the pandemic is of a different scale and nature. In terms of scale, the median annual real decline in charities’ incomes of 13% experienced during the pandemic dwarfs any of the annual real income declines following the Great Recession, which peaked at 4% in 2010 and 2011 (Figure 1). In terms of nature, while the defining feature of the pandemic has been the sudden and significant financial shock to charities’ incomes, the distinctive feature of the Great Recession and subsequent period of austerity was rather the cumulative impact of successive years of less sizeable median annual real term income declines between 2009 and 2014. This paper’s results therefore add to a growing body of literature within social policy highlighting the distinctiveness of the implications of the pandemic. The results add empirical weight to Macmillan’s (2020:130) claim that ‘the impact of the coronavirus crisis on the third sector is not the same as the experience of austerity through the 2010s’. Instead, compared to the Great Recession and period of austerity, the impact of the pandemic has been ‘distinctive in terms of its speed and scale’ (Moreira and Hick, Reference Moreira and Hick2021: 262).

Third, the analysis shows that – while the COVID-19 pandemic has been pervasive in scope – not all charities have been equally affected. Importantly, it shows that smaller charities, particularly those with an annual income less than £100k, have been the most significantly impacted since they have seen the largest relative declines in income. The results are consistent with literature from organisational sociology which predicts that smaller organisations, since they are less able to adopt a variety of adaptive strategies to respond to changes in their environment (Mosley et al., Reference Mosley, Maronick and Katz2012), may be less resilient during periods of economic and social uncertainty. The pronounced impact on smaller charities has important implications given the distinctive role of smaller organisations in civil society (Dayson et al., Reference Dayson, Bennett, Damm, Rees, Jarvis, Patmore, Baker, Terry and Turner2022): their agile response to complex needs, facilitated by the overlapping role of their stakeholders within relatively flat hierarchies; their ability to build long-term trust-based relationships and a person-centred care ethic; and their tendency to be embedded locally within communities of place and interest. Given these distinctive characteristics, future research should examine as a priority the longer-term implications for civil society of the sizeable income decline of smaller charities during the pandemic – and, in particular, consider whether there is evidence for a subsequent increase in the rates of dissolution of smaller charities, alongside whether there is evidence for an impact on their beneficiaries.

Fourth, the analysis – through disaggregating overall trends according to the ICNPO – also provides a window into the kinds of charities most affected by the public health measures designed to mitigate the spread of the virus. For example, the sizeable decline in the income of PTAs reflects the impact of COVID-19 restrictions on the usual fundraising events, including summer fairs. Meanwhile the marked decline in the income of charities involved in culture and recreation reflects the enforced closure during lockdowns of museums, visual and performing arts venues, and recreation and social clubs. The reduction in income of charities involved in the promotion of economic, social and community development, which includes community centres, community associations and community transport groups, in part reflects their reduced income from venue hire. Notwithstanding the prominent fundraising efforts during the pandemic, much directed towards the national charity partner of the NHS (NHS Charities Together), the median charity in the health field also experienced a decline in income – reflecting a decline in fundraising events and in income from trading. In contrast the income of charities in other fields of charitable activity has been more resilient. Charities involved in housing, which include a number of almshouses which receive revenue through residents’ maintenance contributions, have not seen such sizeable income declines. The income of playgroups and nurseries, which continued to receive their early years entitlements fundingFootnote ¹³ from government through the pandemic, has been more resilient than in many other charitable fields of activity. Meanwhile the robustness of the income of village halls – with the median village hall experiencing a sizeable income growth for financial years ending in 2020 – is likely to reflect the impact of the availability of emergency government grantsFootnote ¹⁴ , which replaced income lost from other sources including fundraising.

Fifth – and importantly – the paper shows that the sizeable median decline in charities’ income during the pandemic has been accompanied by a commensurately sizeable median decline in charities’ expenditure. Significantly this is true not only for the population of charities as a whole (Figure 1 and Figure 6) but also at the level of specific sizes of charities (Figure 2 and Figure 7) and at the level of charities in different fields of activity (Figure 3 and Figure 8): in general, those kinds of charities that have seen the most sizeable declines in income have also been those that have seen the most sizeable declines in expenditureFootnote ¹⁵ . Overall the sizeable decline in expenditure provides insight into the extent to which the pandemic affected charitable activity – whether through a strategic decision to cut expenditure in response to a fall in income, and/or through enforced expenditure reductions because of the ways in which public health measures affected charitable operations. The sizeable decline in expenditure is also consistent with the relatively low level of reported financial reserves across the charitable sector at the start of the pandemic: of charities with at least £500k in income, 21% had under one month of expenditure in reserve; a third (33%) had under two months; 43% had under three months (Clifford and Mohan, Reference Clifford and Mohan2020). Note that Walkley et al. (Reference Walkley, Bojke, Howdon, Burchell, Thiery, Cook, Ballantyne and McNeill2021), for the voluntary sector in Yorkshire and the Humber, found that 31% of organisations reported drawing on financial reserves between March and October 2020. Similarly Newby and Branyon (Reference Newby and Branyon2021), relating to the US context, cite evidence that half of Florida’s nonprofits with reserves had drawn on them by the end of 2020. Nevertheless the sizeable decline in charities’ expenditure is consistent with the idea that the scale of the pandemic necessitated response strategies above and beyond drawing on reserves alone. Indeed Maher et al. (Reference Maher, Hoang and Hindery2020), for the US context, report that nonprofits’ response strategies have been focused on limiting expenditure – including freezing discretionary spending, freezing salaries, hiring freezes, delaying capital expenditures, and reducing public access or service hours. In the UK context the national government’s furlough scheme provided a means for charities to release their staff from work duties to reduce expenditure (Macmillan, Reference Macmillan2020), while Walkley et al. (Reference Walkley, Bojke, Howdon, Burchell, Thiery, Cook, Ballantyne and McNeill2021) report organisations reducing the number of paid hours offered to staff. A key priority for future empirical research is to assess the impact of reduced expenditure on charities’ service provision – particularly for smaller charities that have seen the largest relative declines in expenditureFootnote ¹⁶ . However initial evidence suggests that the impact is varied (Clay and Collinge, Reference Clay and Collinge2020): a significant minority of charities in fact sought to ‘broaden’ their offering to reflect increased demand or more complex needs; some sought to ‘maintain’ their services; while many have ‘narrowed and refocused’ their services to focus on their ‘core’ activities, or have had to triage the services they offer.

The analysis in this paper has limitations. In particular, through focusing on the impact on charities’ income, we provide only a partial perspective on how COVID-19 has affected the charitable sector. First, we do not consider the extent to which charities may have faced an increase in social need. Mills et al. (Reference Mills, Cairns, Firth and Dyson2020) argue that charities continuing to provide services during the pandemic, and particularly those organisations working with disadvantaged and vulnerable people, have seen an increase in demand. Walkley et al. (Reference Walkley, Bojke, Howdon, Burchell, Thiery, Cook, Ballantyne and McNeill2021) report that the increase in demand has been particularly acute for organisations working in social and community care and mental health services, and for those providing services for older people – with the increase in need reflecting both the difficulty people have faced in accessing traditional forms of support, and the emergence of new social needs arising from the pandemic and associated public health measures. Second, this paper does not consider how the pandemic has affected a fundamental non-financial resource for the charitable sector: the supply of volunteers (see Kendall et al., Reference Kendall, Mohan, Brookes and Yoon2018). While Thiery et al. (Reference Thiery, Ballantyne, Cook, Burchell, Walkley and McNeill2020) argue that a large number of new volunteers have come forward during the pandemic, many charities have been faced with a decline in the number of volunteers as individuals concerned about their exposure to the virus withdraw from their voluntary activity (Walkley et al., Reference Walkley, Bojke, Howdon, Burchell, Thiery, Cook, Ballantyne and McNeill2021). Third, we do not consider how the day-to-day operations of charities have been affected by the pandemic. Macmillan (Reference Macmillan2020) follows Pro Bono Economics (2020) in highlighting how, for a significant proportion of charities, the negative impact of social distancing on the delivery of services has impacted charities’ ability to meet their objectives.

This paper’s analysis illustrates that COVID-19 has had an unprecedented financial impact on charities. It therefore serves to underscore the importance for social policy, alongside considering trends in individuals’ and households’ living standards and wellbeing, of considering the impact of the pandemic on the voluntary sector. We anticipate that the results of this paper will be of considerable public interest – not only to academic researchers, but also to charities, policy makers, grantmaking organisations and members of the public. We note a number of policy implications of the analysis presented here. First, the comparative resilience in the income trends of publicly funded organisations during the pandemic – both of ‘pre-COVID public funding recipients’ and particularly of ‘ʼnewʼ public funding recipients’, in comparison to ‘non-publicly funded organisations’ – illustrates the importance of government funding. This is consistent with the theory of voluntary sector failure, which suggests that charities’ income from individuals may decline at the time of most pressing social need (Salamon, Reference Salamon1987; Smith and Grønbjerg, Reference Smith, Grønbjerg, Powell and Steinberg2006; Allard, Reference Allard2009), and underscores the fundamental importance of government financial support for the voluntary sector during periods of economic and social crisis. Note that the nature of funding is also important: Clay and Collinge (Reference Clay and Collinge2020) and Newby and Branyon (Reference Newby and Branyon2021) point to the importance of unrestricted funding to provide charities the necessary agility to respond to a crisis. Second, the commensurately sizeable decline in charities’ expenditure that has accompanied the sizeable decline in charities’ income is consistent with the idea that the relatively low level of charities’ reported financial reserves at the start of the pandemic (Clifford and Mohan, Reference Clifford and Mohan2020) provided limited ‘financial flexibility’ to charities when affected by a shock to their income (Tuckman and Chang, Reference Tuckman and Chang1991:450) – such that charities have not been well placed to sustain levels of spending. Evidence from the US suggests that nonprofits with reserves experienced less disruption to their mission-related programming during the pandemic (Kim and Mason, Reference Kim and Mason2020). Therefore the COVID-19 crisis should motivate charities to reengage with their reserves policy (Hyndman, Reference Hyndman2020). The analysis presented here – indicating, in particular, much more sizeable declines in income during the pandemic for smaller charities – suggests that reserves policy should be informed by organisational size and characteristics rather than simply a sector-wide benchmark: for example, it may be appropriate for smaller charities to hold more months of expenditure in reserve. Third, this paper illustrates the importance of further developing and improving the nascent voluntary sector data infrastructure. Without appropriate data infrastructure, there is a lack of a ‘guiding hand’ for donors and funders about where reduced resources might be best allocated during crisis periods. Indeed in general, quantitative data on voluntary organisations have not been readily available: as the UK Statistics Authority (2012:6) explain, the machinery of official data collection is instead orientated towards the state, the market and individuals, such that there has been a notable ‘shortage of regular and timely published statistics about the voluntary sector’. The shortage of timely statistics about the voluntary sector has provided a barrier to providing effective financial support during the pandemic: while resources have been made available by funders, including government, it has been hard to assess those organisations most in need of support or most exposed to reductions in income. Indeed it is harder for policy makers and funders to develop appropriate support without clear information about the scale of the financial challenge that the charitable sector has been facing (Clifford, Reference Clifford2017). Therefore the analysis in this paper – providing the first detailed overview of how charities’ income in England and Wales has been affected by the COVID-19 pandemic – is valuable. Note that this analysis has only been made possible because of the data collected through the annual returns that charities are required to file as part of the Charity Commission’s regulatory process – and because of the increasing detail provided in these annual returns in recent years, including information on charities’ income streams and government funding. Further developments in charity data – including the collection of more detailed data on smaller charities, and an increase in the submission of machine readable charity accounts – would be welcome. This would further enhance our ability to understand the financial challenges faced by charities, and therefore our ability to support the charitable sector, during periods of economic and social crisis.