Researchers have found that around a third of charities expect their finances to deteriorate in the coming months while a further third expect their resources to stagnate.
Pro Bono Economics (PBE) and Nottingham Trent University’s VCSE Data and Insights National Observatory report warns that deep-rooted challenges of financial instability, skills gaps and rising demand are affecting charities’ ability to support people most in need.
It says that most charities expect demand for their services to increase over the autumn, while many face recruitment difficulties and have asked staff to work increased hours.
“These triple tidal forces of restricted income, workforce challenges and ever-rising demand mean many organisations are in a constant state of adaptation and flux,” it says.
“This is leading to service cuts and cost increases for users, as a stretched workforce to juggle.
“One in five (18%) charities have had to cut the level or number of services they offer as a result of rising costs.”
Financial challenges
Analysis in the report is based on results from a survey undertaken between 3 and 31 July, with responses from 551 registered charities and other voluntary groups across the UK which completed 90% or more of the survey.
The report says 32% of charities expect their finances to deteriorate in the coming months while a further 35% expect their resources to stagnate.
Meanwhile, 70% of charities expect demand for their services to increase over the autumn.
One in three charities expect to be overwhelmed by that demand, and unable to meet it all.
Some 53% of charities that work with local government suggest that the financial situation in local authorities is a moderate to high risk.
Indeed, the report says some charities have made the decision to no longer apply to them for grants or contracts
Local government funding makes up around 13% of charity sector income, and as such the financial situation in local government is “a big threat”.
“The perennial financial challenges that plague the charity sector continue,” the report says.
Recruitment crisis
The reports also highlights recruitment difficulties and a skills crisis in the charity sector.
Four in 10 charities report struggling with recruitment, and 57% of vacancies in the sector are now defined as hard to fill.
Some 35% of charities with recruitment challenges have had employees working increased hours, the report say.
Charities’ spending on training and development for staff has fallen by 25% since 2011, the report says, with charities three times less likely to invest in leadership development than the wider economy.
Meanwhile, researchers found that use of new technology in the sector is currently limited.
Some 26% of large and 24% of medium charities have been able to explore and use automation over the past 12 months, the report says, compared to 8% of small charities.
‘This new normal is an unhealthy one’
Jansev Jemal, director of research and policy at PBE, said: “As the pandemic and cost of living crisis have retreated, the charity sector has reached its new normal. Unfortunately, this new normal is an unhealthy one.
“Too many organisations in the charity sector are held back by the sector’s poor financial model, on a never-stopping treadmill of demand, without the right people and skills to meet the increasing needs of the people they serve.
“Charities’ unsteady foundations mean cuts to help for people across the country, with services appearing and disappearing despite need because the money and resources can’t be relied upon.”
Jemal added that the government’s newly-created Skills England body could help to address the skills shortage in the charity sector.
“The new government’s long-term programme of reform could deliver some slowing of demand for charities’ services,” she said.
“But investment is needed now in the sector’s capacity to fundraise and adopt technology. The new Skills England body should support charities as well as businesses to plug their skills gaps.”
Daniel King, director of the observatory, said the insight “paints a worrying picture of the state of the sector’s health”.
“These combined factors compound the difficulties they face and make their ‘new normal’ very tough indeed,” he said.
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