Taking the Pulse of the Small Charity Sector. December 2015 to February 2016 March to May th Edition

Transcription

1 Taking the Pulse of the Small Charity Sector December 2015 to February 2016 March to May th Edition

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3 Background of Respondents Geographical spread East 7% London 3 Scotland Midlands(E&W) 8% North(NE & Y&H) 1 North West 7% Scotland 6% South East 19% South West 9% North ( Inc. NE & Y&H) Wales North West Wales Midlands East (Inc. East Midlands & East) London South West South East Cause type Where services are delivered Local 4 Regional 16% National 2 International 19% 28% Children & Young People 2 Health 1 Community 1 Education 1 Disability Arts & Culture Animals Homelessness Environment 0. Religion 0. Sport

4 Contents Foreward 1 Income Generation 2 Service Delivery 4 Workforce 6 Governance 8 Conclusion 9 Perceptions: Incentivising Trustees 10 Methodology The FSI Small Charity Index is a quarterly State of the Small Charity Sector Report. The Small Charity Index reports across four key areas: Income Generation, Service Delivery, Workforce and Governance. The aims of the Small Charity Index are to assess the challenges facing small charities across the UK, identify trends as they emerge and provide a benchmark against which policymakers can make decisions to support the sustainability of the small charity sector. The data gathering and analysis of trends is carried out by the FSI through its membership of over 4,500 distinct small charities. The FSI is able to capture large amounts of qualitative and quantitative data from small charities through surveys and consultations, in addition to face-to-face consultations with over 2,200 small charities per annum through its training and advice programmes. The Small Charity Index is compiled using the above analysis together with the biennial Skills Survey and current research projects undertaken by the FSI, and with reference to relevant research published by other infrastructure membership bodies such as Charities Aid Foundation (CAF), National Council for Voluntary Organisations (NCVO) and Small Charities Coalition. Examination of other data sources additionally informs the analysis behind the Small Charity Index. Charity members of the FSI have an annual turnover of under 1.5 million, and respondents from this quarter s Small Charity Index show 5 have an annual turnover under 150,000, 16% between 150,000 and 250,000, 2 between 250,000 and 500,000 and 1 between 500,000 and 1.5 million. Data for the current period was collected between 3rd June 2016 and 7th July 2016, and refers to the period 1st March 2016 to 31st May Comparisons are made with the same questions recorded each quarter since June 2013, giving a total of 36 months of comparative data.

5 Foreword Pauline Broomhead, Chief Executive, FSI Since June 2013, the FSI has collected data through the Small Charity Index, tracking the fluctuations in income, workforce issues, demand for services and governance challenges faced by small charities. It is evident from the survey results that small charities have, for some time now, faced uncertainty. As we move into the post-brexit void this looks to continue, moving forward in an environment that will be filled with challenges and, we hope, opportunities for small charities. Indeed the UK as a whole is in unchartered waters and it is not only the voluntary sector that is preparing to come to terms with the unknown. When markets are volatile, forecasters warn that recession is likely and may drive further cuts to public funding, triggering even greater demand for small charities and the services they are able to provide. When interest rates are at an all-time low of 0. and are forecast to go as low as 0.2, and when the general public is feeling the effects of falls in Sterling and potential rising inflation, income from grant making trusts and donors may suffer. In the longer term with the withdrawal of EU funding, small charity trustees, already cautious, face the uncertainty of whether the government will establish alternative replacement programmes. These are only some of the unknowns, all of which place downward pressure on small local charities and those who work in them. However, small charities must also embrace the essence of what makes them different from larger organisations. As small local charities we inspire trust - the recent research from the Charity Commission found as a whole that trust was diminishing but that it remained high for small local charities 1. We are at the heart of our communities and we are trusted. We are nimble; small local charities can adapt quickly to the environment they find themselves in. One small charity I was taking to recently described themselves as a kaleidoscope, where the different pieces changed constantly but the overall effect was always impactful and inspiring. We are often closer to our beneficiaries and our donors. We have a secret weapon : our volunteers, who are often able and willing to ensure that we get the most out of our limited resources. To sum it up, we are nimble, we can keep it simple, we can show a direct correlation between our work and the impact it has on our beneficiaries. We dream big, we have innovative projects and can link these do our donors through impact and inspiration. Most importantly, we are at the forefront of service delivery in local communities and, as such, we are able to adapt quickly to the future needs of our beneficiaries. Now is not the time to loose heart. We must come together and recognise the challenges, put strategies in place to deal with or mitigate the effects but also build on our strengths, never forgetting we are often the last line of hope for those in our society who are the most vulnerable. 1 Charity Commission (2016) Public Trust and Confidence in Charities 1

6 Income Generation Index Results: March, April and May 2016 Since June 2013, the Small Charity Index has been tracking small charities experiences in income fluctuations across voluntary, statutory and earned income sources. It is evident that small charities are continuing to face uncertainty, which inevitably places pressure on income generation. Findings from the Small Charity Index reflect recent research that the sector faces an unpredictable environment; with ongoing and long-term issues challenging small charities this means that the income of small charities remain unstable 2. Voluntary Income Against a backdrop of increased press and public scrutiny into fundraising practice, small charities may be more vulnerable to shortfalls in income from voluntary sources. However, trust in small charities remains high in comparison to trust in larger charities 3. In the current quarter, close to half of respondents (47%) reported no change in voluntary income, while only 7% reported increases above 1 and 2 experienced a decrease (Graph 1). In comparison to the last quarter, there has been a small rise in the number of small charities experiencing a decrease in voluntary income, from 2 to 2. These results continue the trend of static voluntary income levels for the majority of the small charity sector. Since June 2013, the Small Charity Index evidences only a minor total increase of in voluntary income, which is reflective of the sector as a whole, as the NCVO 2016 Almanac reports the overall trend for voluntary income has remained relatively stable 4. Regional Round-Up The East, North and South West have experienced a consistent growth in voluntary income since June 2013, at 1, 7% and this quarter respectively. Statutory Income It is clear that changes and cuts to government funding pose a serious risk to many small charities. Statutory income to the voluntary sector as a whole has fallen, with smaller charities hit particularly hard 5. The public service delivery environment has also changed significantly, with a shift towards one that favours competitive commissioning models in which all types of providers compete to deliver public services and, furthermore, this is to the detriment of small charities as larger charities tend to dominate the market 6. The majority of Small Charity Index respondents (8) reported their statutory income levels remain unchanged in the current quarter, a small decrease compared to 8 in the last quarter (Graph 2). Statutory income consistently experiences the largest drop in total income, of 7% since June Only 6% of small charities reported an (1) We asked in the three months March, April and May 2016 has your voluntary income increased, decreased or remained unchanged? Base: All individual respondents (n = 226) 8% 1 47% 8% 2 + Decrease 16-2 Decrease 11-1 Decrease 6-1 Decrease 0- Decrease Unchanged 0- Increase 6-1 Increase 11-1 Increase 16-2 Increase 2 + Increase 2 NCVO (2016) Navigating Change: An Analysis of Financial Trends for Small and Medium-sized Charities 3 Charity Commission (2016) Public Trust and Confidence in Charities 4 NCVO (2016) UK Civil Society Almanac PPR (2016) Too Small to Fail: How Small and Medium-sized Charities are Adapting to Change and Challenges 6 Foundation for Social Improvement (2014) The Relationship Between Small Charities and Public Sector Involvement: the Missing Pieces 2

7 increase in statutory income, while 1 reported a decrease this quarter. Regional Round-Up The largest decrease in statutory funding this quarter was experienced by the East and South East (). The majority of (2) We asked in the three months March, April and May 2016 has your statutory income increased, decreased or remained unchanged? Base: All individual respondents (n = 226) regions reported a decrease this quarter and only the Midlands, 8 Scotland and South West reported no change in statutory income. Earned Income A dependency on one source of income would amplify a charity s vulnerability to secure income. Small charities are adapting to the financial challenges with a range of actions to offset losses in public funding, with both large and small charities seeking to grow their earned income to diversify funding streams. Data from the Small Charity Index reflects research from NCVO which finds there is a rise in earned income by up to 6 as a result of increased charitable and fundraising trading 7. Results from the Small Charity Index continue to report earned income having the most significant increase for small charities, with a total rise of 9% since June % of small charities experienced an increase in earned income in the current quarter, evidencing the growing need to diversify and compensate for the reduction in public or statutory funding. Over three quarters of respondents (79%) reported no significant change in the same period (Graph 3). Regional Round-Up The majority of regions have seen a constant increase in earned income since June 2013, with the East and Midlands experiencing the highest increases of 1. 9% 79% (3) We asked in the three months March, April and May 2016 has your income from paid-for services increased, decreased or remained unchanged? Base: All individual respondents (n = 226) 7 NCVO (2016) Navigating Change: An Analysis of Financial Trends for Small and Medium-sized 3

8 Service Delivery Charities play a vital role in civil society, and the majority of respondents to the Small Charity Index (4) would describe their services as being delivered within their local community. Being rooted in their local areas brings a deeper understanding of their beneficiaries, and it is therefore evident that small charities play a valued role in responding to the needs of local people. However, small charities are continuing to experience an unprecedented increase in demand for services, reflecting changes to the welfare state. Small charities are left to fill the gap when the provision of local authority services decreases. This is further evidenced by figures published by the CAF, which indicate that 98% of households report to have used at least one charitable service in the past year 8. Index Results: March, April and May 2016 Demand for Services There is no doubt that small charities play an important role in providing support or advice, and 6 of respondents to the Small Charity Index have indicated an increase in demand for services this quarter (Graph 1). Just over a quarter (27%) report an increase of more than 1, and only a minority () have experienced a decrease in demand for services over the same period. This data illustrates the trend of a continuous rise in demand for small charities services, with results from the Small Charity Index dating to June 2013 demonstrating the total increase in demand to be a significant 6. Regional Round-Up Across all regions, small charities experienced an increase in demand for services over this quarter, with the Midlands, North West, South West and Wales reporting increases of 7%. Confidence in a Small Charities Ability to Meet the Demand for Services Small charities demonstrate great resilience while operating in a challenging environment. The confidence of small charities in their ability to meet the increasing demand for services remains strong, with 79% of respondents stating they feel confident to a lesser or greater degree that they will be able to continue to deliver their services over the coming 12 months (Graph 2). Regional Round-Up 3 18% 17% 1 1 The confidence of small charities working in the North West and South 8 Charities Aid Foundation (2016) Charity Street 2 4 (1) We asked in the three months March, April and May 2016 has your charity seen the demand for services increase, decrease or remain unchanged? Base: All individual respondents (n = 226) (2) We asked taking everything into account, how confident do you feel about your charity s ability to deliver its planned level of services over the next 12 months? Base: All individual respondets (n = 226) 10 Fully confident 16% Not at all confident 2 + Decrease 16-2 Decrease 11-1 Decrease 6-1 Decrease 0- Decrease Unchanged 0- Increase 6-1 Increase 11-1 Increase 16-2 Increase 2 + Increase 2 17% 1

9 East remain high, at 8 and 7 respectively, while the South West reported a lower level of confidence at 66%. Working in Collaboration Working in collaboration more effectively will not only help to solve social problems but also facilitate efficiency, growth and sustainability. The FSI believes that through working together, we can build a stronger and more able small charity sector. Our recent extensive research into collaboration found only 1 of small charities are working with other charities to any meaningful degree 9. Small charities therefore need to increase working in collaboration with others to safeguard their future and the vital services they provide. (3) We asked does your charity work in partnership with other charities? Yes 7 No 27% The results of the Small Charity Index highlight starkly that the majority of small charities (5) who state that they are working collaboratively are undertaking less than 1 of their activities in partnership with others (Graph 4). Therefore, when combined with the 27% of small charities who do not work in partnership (Graph 3), this produces a cumulative figure of 78% that are not collaborating at a significant level. This figure demonstrates the need for greater collaborative working to safeguard the long term sustainability of the small charity sector. (4) We asked the charities that answered YES, what percentage of your services during the three months March, April and May 2016 were delivered in partnership? Base: All individual respondents (n = 226) 5 16% 1 6% % 9 Foundation for Social Improvement (2016) Collaboration: More than the Sum of the Parts 5

10 Workforce The voluntary sector workforce accounts for 2.7% of the total UK workforce, and moreover, 47% of voluntary sector workers are employed at smaller organisations with less than 25 employees 10. Staff and volunteers form the backbone of small charities, yet jobs in the charity sector are generally less secure compared to the public and private sectors. Nevertheless, results from the Small Charity Sector demonstrate positive staff and volunteer retention rates. Index Results: March, April and May 2016 Staff and Volunteer Recruitment and Retention The majority of respondents (66%) report their staff numbers remain unchanged over the current quarter (Graph 1), however this is a decrease of 8% from the previous quarter. Overall, staff numbers have remained relatively static since June 2013, with no significant increases or decreases in the number of staff employed by small charities. The impact of volunteering is most keenly felt in small charities and is crucial to the sector. It is therefore welcoming to see a steady increase in volunteer numbers by 2 since June 2013, rising by an average of quarter on quarter. Regional Round-Up The majority of regions have seen increases in volunteer numbers of or, and the South West saw the largest increase in volunteer numbers by. 66% 8% (1) We asked In the three months March, April and May 2016 have your paid staff numbers risen, fallen or remained unchanged? Base: All individual respondents (n = 226) % 5 16% 9% 6% (2) We asked In the three months March, April and May 2016 have your volunteer numbers risen, fallen or remained unchanged? Base: All individual respondents (n = 226) Decrease 16-2 Decrease 11-1 Decrease 6-1 Decrease 0- Decrease Unchanged 0- Increase 6-1 Increase 11-1 Increase 16-2 Increase 2 + Increase 10 NCVO (2016) UK Civil Society Almanac

11 Challenges Workload continues to be the major concern to small charity leaders in this quarter, selected as the greatest challenge (38%) that faces their organisation (Graph 3). Funding is an additional significant concern, selected by 2 of respondents as their second greatest challenge, followed by demand for services as the third greatest challenge (1). This highlights the little headspace small charity leaders have to manage change, having to deliver a rising demand for services without a matched increase in financial or staff resources. (3) We asked in the three months March, April and May 2016 which of these issues has presented the greatest, second greatest and third greatest challenge? Base: All individual respondents (n = 226) % 9% Greatest Second Greatest Third Greatest 1 9% 1 9% Workload Training Investment Retention Cashflow Demand Funding Motivation Recruitment 8% % 1 6% 1 1 Staff Motivation Morale remains high amongst the small charity sector workforce, with 8 of respondents reporting staff motivation as good to excellent over the current quarter (Graph 4). This suggests that the sector is optimistic for the future; small charities are able to cope with the impact of changes in the external environment and are embracing the need to respond in ways which are vital to remaining sustainable. (4) We asked on a scale of 1 to 10 how would you rate the current motivation/morale of your staff? Base: All individual respondents (n = 226) Very Poor Excellent 7

12 Governance While recent research has found that the public are more likely to trust small charities over large ones 11, events over the past year have nevertheless intensified the media spotlight and scrutiny into the charity sector. An emphasis of good governance and a focus on the role of trustees in small charities is therefore crucial for maintaining public trust and confidence in the sector. It is the Trustee Board s responsibility to keep their eye on the horizon, yet trustees are being pushed to the limit as they guide their small charity through a reality of meeting an increased demand for services against static levels of income. Index Results: March, April and May 2016 Reserves The number of small charities reporting to hold reserves is marginally increasing, with 79% this quarter (Graph 1), compared to 78% and 7 the previous quarters. However, the remaining 2 of small charities are operating without reserves, and 3 of those holding reserves have used reserves over the previous quarter (Graph 2). This would suggest a considerable number of small charities are struggling to generate the income needed to maintain their services or pay for operating costs 12. Trustee Confidence Ongoing and long-term issues challenging the sector mean these small charity trustees may encounter difficult decisions, one of which may be whether to cease operating. Respondents to the Small Charity Index were asked to determine how likely it would be that their charity would face closure in the following 12 months, nearly half (49%) reported that it is not at all likely which is an increase from 39% last quarter (Graph 3). Nevertheless, during a period where the public are increasingly turning to charities for support, on a scale of 1 to 10, with 10 being very likely to face closure, 19% selected between 5 and Charity Commission (2016) Public Trust and Confidence in Charities 12 Charity Finance Group, Institute of Fundraising and PwC (2016) Managing in the New Normal (1) Does your charity hold reserves? Base: All Individual Respondents (n = 226) Yes 79% No 2 (2) If Charities answered YES to question (1) we asked, how much of your reserves have you used during the months of March, April and May 2016? Base: All Individual Respondents (n = 226) Maintained level of reserve Used 2+ Used 16-2 Used 11-1 Used 6-1 Used less than 7% 7% 1 6 (3) Some charities may face exceptional challenges and may have to contemplate closure, we asked how likely is it that your charity will face closure in the following 12 months? Base: All Individual Respondents (n = 226) 10 Very likely Not at all likely 1 4

13 Investing in Development Given all the issues outlined above, it is therefore not surprising that only of small charity trustees report to be fully confident to take up opportunities for development, outside of their current business plan, that carry a financial risk (Graph 4). (4) We asked How confident are your Trustees to take opportunities for development, outside of your current business plan which carry a financial risk? Base: All Individual Respondents (n = 226) 10 Fully confident Conclusion 9 8 9% The quarterly Small Charity Index illustrates how small charities are able to demonstrate great resilience in the face of ongoing challenges in the sector. However, the funding landscape still points to favouring the growth and survival of larger charities, which is of concern to small charities given their vital role in civil society and the wider social value they provide that cannot % % be replaced by larger charities. It is important that the 1 Not at all confident 1 playing field is levelled out for small charities to ensure a fairer system is in place. The results here track how small charities are coping with the impact of changes to the environment in which they operate. Following the recent EU referendum, the future is even more unclear as to what it beholds. Despite a new set of challenges, including intensified public scrutiny into the sector, it is evident that the public still values charities. With demand for services continuing to rise, leaving little headspace for small charities to manage change, the FSI repeatedly identify that greater collaborative working is key to the long-term sustainability of the small charity sector 13. To safeguard the vital support and services that small charities provide, we need to work in partnership with others. The Trustee Board must be committed to seeking out new opportunities to ensure their support to beneficiaries remains available, and that their organisation itself is sustainable and relevant. 13 Foundation for Social Improvement (2016) Collaboration: More than the Sum of the Parts 9

14 Perceptions Each quarterly Small Charity Index surveys our members on issues that currently affect the small charity sector under the Perceptions Survey. This quarter s Perceptions focused on being a trustee, which has never been more challenging. The past year has been characterised by a level of concern about charities that is greater than ever before, and good governance in small charities is central to maintaining public trust. Governance describes the role of the Trustee Board in delivering the statutory responsibilities. It is the Board s responsibility to keep the charity on mission and develop a robust strategy, ensure compliance with charity law and regulations, maintain the financial stability of the charity, secure sufficient funds to meet the charity s obligations and more... With so much resting on their shoulders why, we ask, would you become a small charity trustee? If you are a donor to a charity you are incentivised to give through tax incentives that benefit both charity and the donor. We wanted to know what our members think the government could do to incentivise more people to be trustees, if indeed they think incentives should be given at all. We asked our small charity respondents for the reasons why they became a Trustee, and 6 selected I care about the cause as the top reason, followed by I wanted to use the skills I have to make a difference (1) and I wanted to put something back into my local community (1). The Perceptions results show 4 of small charities believe the government should consider incentives to those who commit to becoming a trustee, while 56% believe the government should not (Graph 1). Of those that selected yes, we asked what incentives government could give to encourage more people to become trustees. The majority suggested financial incentives, focusing on tax breaks or allowances to cover expenses, as well as support in training and guidance to develop the skills needed to become a trustee. Of those that responded that the government should not consider incentives, their objections were focused mainly around the culture of volunteering; becoming a trustee because they are passionate and committed to the charity s cause. They felt that incentives would undermine the principle of being a trustee and risk having people sign up for the wrong reasons. The government recently suggested that larger charities should have the right to remunerate their trustee board members for the work they do (outside of current normal payment of expenses). The survey asked whether charities should be able to remunerate their Trustee Board members, 78% respondents selected no (Graph 2), and 7 believed this would undermine the defining feature of charity work (Graph 3). Nevertheless, 7 of small charities also agreed that they should have the right to remunerate their Trustee Board members if larger charities had the right to too. We also questioned how small charities recruited trustees, the most common response was nominated by a member of the current Trustee Board (6), followed by advertising vacant posts (5). The majority of small charities (7) also reported to having a formal induction process for new trustees. 10 (1) We asked do you think the government should consider giving incentives to those who commit to becoming a trustee? Yes 4 No 56% (2) Should charities be able to remunerate their Trustee Board? Yes 2 No 78% (3) Would remuneration undermine the defining feature of charity work? Yes 7 No 26%

15 Governance: Trustee Strategy Away Days, Board Development, Board Training, Charity and CIO Registration Business Planning: Organisational Strategy, Business Planning and Annual Operating Plans Income: Fundraising Strategies, Scoping and Feasibility Studies, Case for Support, Earned Income Generation and Capital Appeals/Campaigns Impact Measurement & Reporting: Impact Measurement Frameworks, Developing Measurement Tools, Impact Reporting and Social Return on Investment Public Sector Commissioning: Tender Development, Consortia & Partnership Support, Commercial Skills and Commissioning Training Recruitment: Advertising, Job Specifications, Interviewing and Benchmarking Delivers professional consultancy services to all charities. Experts across charity strategy, governance, income generation, fundraising, impact measurement and reporting, public sector commissioning and recruitment. www e 11

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