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Charities on the “cliff edge”: the third sector in 2021

Helen Packer | 5 January 2021 | News

“Our organisations are going to be the ones picking up the pieces”, says Olivia Barker White. As a trustee of The Small International Development Charities Network (SIDCN), she has spent the last six months campaigning for more government support for international aid organisations. But many charities, both in the network and across the sector, are starting to wonder if they’ll still be around to pick up the pieces when the worst of the pandemic is behind us.

Many charities’ traditional revenue streams have been constricted by the coronavirus outbreak. Lockdowns have forced them to close the doors to their shops, while organisers are cancelling marathons and businesses are slashing their giving budgets.

At the same time, more and more people are suffering from the catastrophic effects of Covid-19. They’re turning to charities for support, with no end in sight. 75% of charities expect higher levels of demand over the next year, according to Pro Bono Economics.


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Unfortunately, many of them may no longer exist by the end of 2021. Despite vaccinations ploughing ahead and signs – albeit small ones – of economic recovery, 14% of charities said in November they were unlikely to still be operating then. This was 10% more than in October. For certain sub-sectors, the picture is even bleaker. SIDCN found that 45% of their members don’t expect to survive until the end of the year.

So if the world can recover, why can’t charities? As the UK enters its third lockdown, more problems are on the horizon, including Brexit and government cuts. Charities are facing a crisis that threatens the survival of much of the sector.


The government response

In April 2020, chancellor Rishi Sunak pledged to help “local charities who provide so much compassion, care and community to the most vulnerable in our country.” With these words came a £750 million support package for frontline charities across the UK. This was on top of other government support that charities were eligible for including the Coronavirus Job Retention Scheme (furlough).

“Although it is a large sum of money, there are hundreds of thousands of charities”, points out Simon Johnson, non-executive director at HW Fisher and charity trustee, “so there are very few that are going to benefit from it directly.”
The chancellor’s commitment barely scratches the surface of the estimated £10.1 billion funding gap charities faced in 2020. Sarah Vibert, director of public policy and volunteering at NCVO, points out that both the sector-specific package and the furlough scheme are short-term. This means many charities are heading straight for a “cliff edge” at the end of the financial year.

Sunak’s support also overlooked the thousands of charities delivering frontline services abroad. SIDCN found that while 89% of their members have responded directly to Covid-19, only 4% have received any government funding, including furlough. Many volunteer-led organisations were ineligible for furlough while small charities couldn’t participate without a significant reduction in their output at a time of high demand.

In his autumn spending review, Sunak delivered an additional blow to international development charities, cutting the overseas aid budget from 0.7% to 0.5% of gross national income.



While many of us are happy to see the end of 2020, this year starts with another setback for the third sector: Brexit. Until now, the UK benefited from £1.5 billion per year from the European Social Fund, aimed at reducing inequality and investing in disadvantaged communities. While some of this goes directly to charities, much of it is used by authorities to invest in local services, reducing the strain on charities’ resources.

Losing this income is likely to compound the existing issue of local government funding cuts. Research by The Lloyds Bank Foundation has found that these cuts have already exacerbated problems for charities, as people turn to them for services they no longer receive from their local authority.

The government has committed to replacing EU funding with the UK Shared Prosperity Fund, but the details of its plans are unclear. In his autumn spending review, Sunak announced a £220 million pilot programme to launch in 2021. The government has yet to set out how long it will take for this figure to reach the £1.5 billion pledged.


What next?

Stakeholders are calling for further government support to save the sector. #NeverMoreNeeded, a national campaign to support charities, has suggested five key measures. These include an increase in the amount of Gift Aid charities can claim, the redistribution of dormant assets and increased funding for local authorities.
But as the government faces competing demands from other struggling industries, it is unlikely to part with its cash eagerly. Charities need to look at other ways to survive and they need support to do so. The Lloyds Bank Foundation is calling for non-government institutional funders to shift to longer-term, core investments to help the sector survive.

The general public can also help. CAF’s 2020 Giving Report highlights that, despite widespread financial pressure, public giving has remained at a similar level to last year. But there are winners and losers within this. While NHS charities and hospices have seen a welcome surge in donations, public giving to medical research charities has fallen.

For those who cannot afford to donate, there are other ways to support. Digital and micro-volunteering have become more popular as people have been forced to stay home. Pro-bono time and skills can be a lifeline to small charities, according to Barker White.

And for the charities that won’t make it through? They shouldn’t bury their heads in the sand. Johnson says charities need to take responsibility for their futures. If they are at risk of closure, then trustees need to begin thinking about how this can have the least impact on beneficiaries. This includes working with other charities to transfer resources and assets so that service users can continue to benefit. Sadly for some charities, it may already be too late.