Sir Stuart Etherington
Chief Executive, NCVO

The 2015 Civil Society Almanac once again provides a comprehensive and accessible overview of what’s happening to the voluntary sector.

Using the latest data available – which is mostly drawn from the 2012/13 financial year – we describe a sector that is continuing to adapt to austerity and a recovering economy.

The voluntary sector remains large and strong. It continues to play a vital role in society, reinforced by a population who continue to give large amounts of time and money, even while its relationship with government is shifting substantially. However, the sector is currently about the same size as it was back in 2007/8 with both its income and expenditure largely stagnant. This raises serious questions about the financial sustainability of much current voluntary sector activity.

The voluntary sector is at the heart of society

The sector’s 160,000 charities undertake a huge range of activities and services, across the UK and worldwide. Their turnover in 2012/13 was £40.5 billion, their total funds are worth £105 billion, and they employ more than 820,000 people. Furthermore, the voluntary sector catalyses the wider contribution of an estimated 21 million volunteers.

While these figures relate to the voluntary sector in particular, we continue to recognise the value of the whole of civil society – which also includes social enterprises, co-operatives, trade unions, community groups and voluntary action.

The sector is evolving

One of the most interesting changes to the sector has been the addition of some new charities which reflect wider political and economic changes. As government has rethought the role of government agencies, the charity sector has seen major new charities such as Nesta and the Canal & River Trust join its ranks. It has also seen developments at the other end of the organisational scale. Driven by the economic challenges facing many communities in recent times, the number of foodbanks has, for example, increased exponentially.

A small minority of larger charities dominate in economic terms…

Assets are not evenly distributed throughout the sector – the majority (73% or £70.2 billion) are held by the top one per cent of asset owners (1,168 charities). Grant-making remains dominated by a small group of large charities – the ten largest grant-makers account for 43% of all grants made.

…But most charities are small and operate locally…

The sector – and most people’s experience of it – is local and small-scale, responding to need at the community-level: almost eight in ten charities operate locally.

There are stark contrasts between smaller charities and their larger cousins

Although large organisations offer important advantages such as the ability to deliver programmes to scale, smaller organisations have a different focus, employ fewer staff, and have lower levels of overheads. Subsequently they tend to spend more on charitable activities, make back much more on their fundraising activities (small and micro-organisations make back over ten times their fundraising budget), and are more likely to rely on income from individuals.

Austerity continues to shape the sector

While the economy has been slowly growing for the past few years, the sector is yet to feel any positive impact in terms of its income and continues to face a challenging financial environment.

The value of grants and contracts from government has fallen by £1.7 billion from levels seen in 2010/11. The pattern of decline has varied between different sources of government funding – cuts in local authority funding (£800 million) were concentrated in the 2011/12 financial year, while cuts to central government funding (around £1 billion) were spread through 2010/11 to 2012/13. At the same time spending by the sector has not increased. In 2012/13 the sector spent £39.3 billion, around the same in real terms as that seen before the recession in 2006/07 (£38.9 billion).

Charities are diversifying their sources of funding

In response to some of these pressures, the sector continues to earn more income for itself. In 2012/13 it earned £22.7 billion, a huge increase from the £11.9 billion earned in 2000/01. Organisations are now also securing more earned income from individuals than from donations or legacies. Income from grant-making foundations has risen over the previous six years, from just under £2 billion in 2007/08 to £2.5 billion in 2012/13.

Income from individuals and from grant-makers has allowed the sector to offset some of the losses from government funding, although the experiences of individual organisations vary enormously and our data shows many are struggling to do so.

Fundraising activities show a good return of investment

The sector spends £4.9 billion generating funds, or just over 12% of the total budget – employing fundraisers, organising events, and contacting potential donors directly. This remains a highly cost-effective use of money – for every pound spent on fundraising activities, they raise, on average £4.20.

We’re a generous country of givers…

Donating to charitable causes remains popular – 44% of adults reported giving money to charitable causes in a typical month. It is also broadly consistent in terms of the causes that people give to. Medical research is the most popular cause, followed by causes ‘children and young people’ and ‘hospitals and hospices’. They were the top three causes in 2014 and in all previous years of the UK Giving survey.

…and of volunteers

Volunteering remains a highly popular activity but has decreased slightly from the previous year – 41% of people reported taking part in formal volunteering (through a group, club or organisation) at least once in the past year, equivalent to 21 million people across the UK, compared to 44% in the previous year. Rather than reflecting a decline, this is most likely a fluctuation between individual years – rates have not varied much since 2001. While most volunteering takes place within the voluntary sector, it is also evident throughout the public sector, as well as parts of the private sector.

The voluntary sector’s workforce has increased

Since the recession the number of paid employees working in the voluntary sector has grown by 13% to 821,000. The voluntary sector workforce has a higher proportion of part-time workers than for the public and private sectors (39% compared to 30% and 25% respectively) and more employees working on temporary contracts (11% compared to 5% for the private and 8% for the public sector).

There are signs of financial recovery but we haven’t returned to pre-recession levels

Levels of reserves within the sector have seen a modest recovery (currently at £50.6 billion) but they are still below 2007/08 levels (£56.1 billion). Against a backdrop of declining overall income, some charities may be spending their reserves in order to continue to function. Given that charities typically hold only the equivalent of 6-8 months running costs in the form of reserves, this pattern of spending is unlikely to be sustainable for many.

These trends point to an uncertain future. Since 2007 the voluntary sector has experienced two financial “shocks”, which mirror the experience of the rest of the economy. The first, the recession of 2007/08, saw falls in income from individuals and a rise in beneficiaries in need. The second, the impact of government austerity, has seen large falls in income from all parts of government. These shocks have produced a voluntary sector that is roughly the same size as in 2007/08. As the sector continues to adjust to this new funding landscape, many organisations are facing serious financial challenges as they seek to continue meeting their charitable objectives.

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UK Civil Society Almanac 2015 / Almanac

Published: 02-06-2015