One in 10 UK charities are facing bankruptcy by the end of the year as they struggle to cope with a £10bn shortfall caused by soaring demand for their services and lost fundraising income due to the coronavirus pandemic, a study shows.
The analysis by Pro Bono Economics, an independent charity, says the coronavirus crisis will trigger a £6.4bn loss of income for charities over the next six months just as demand for extra services – ranging from health to debt advice and social care – piles on extra costs of £3.7bn.
There are just under 170,000 general charities in the UK, sharing a total annual income of about £51bn, according to the National Council for Voluntary Organisations (NCVO). The vast majority are small charities, meaning they have income of under £100,000. Larger charities (£1m upwards) account for about a fifth of the sector but 80% of its income.
Smaller locally based charities are especially exposed to the crisis, the study said, with nearly two-thirds reporting they have already made “significant” cuts to services and one in eight (13%) expecting to go to the wall within months. Two-thirds were unable to furlough staff because this would mean having to stop providing services.
Household-name charities are also facing serious problems, with some saying the sudden rise in operating costs since the lockdown in March has forced them to use public donations to prop up services they provide under contract to local authorities and central government.
They include the National Trust, which has identified a shortfall of £200m this year, Age UK, which is reporting a £42m loss of income, and Cancer Research UK, which has warned it will lose about £120m in donated income over the next 12 months.
“If we don’t funnel more resource to charities in the coming weeks, it’s clear that many will struggle to survive,” said Matt Whittaker, the chief executive of Pro Bono Economics.
“The fact that one in 10 charities expect to go under in the next six months is on its own a shocking enough statistic. But once we add in the significant constraints being faced by many of those organisations that do survive, we’re looking at a huge hit to the overall capacity of the sector.”
Whittaker said the government’s £750m bailout fund for the voluntary sector announced in April was not enough given the scale of the problem. The crisis would undermine the charity sector’s ability to nurture and encourage the upsurge of volunteering and community spirit that has emerged over the past three months.
The analysis, based on Pro Bono’s weekly tracker survey, found nine in 10 (88%) charities anticipated Covid-19 would reduce their income over the coming six months compared with pre-crisis plans, and over half (59%) would “significantly” reduce their activity. Two in five said the biggest issue was the impact of physical distancing on their ability to deliver services.
Karl Wilding, the chief executive of the NCVO, said the Pro Bono estimates of £10bn by Christmas were in line with others he had seen. The analysis in effect updates the NCVO’s earlier estimate of a £4.3bn shortfall for the sector over three months.
Wilding said the charities most likely to be hit by rising demand and falling income were those working in housing, social care, mental health and in disadvantaged communities. “The crisis has not been a great leveller for charities: some are hit harder than others. We must remember that these are organisations that people depend upon,” he said.
Neil Heslop, the chief executive of Leonard Cheshire, the disability care charity, said it faced a worst-case scenario shortfall of up to £20m this year – about a sixth of its annual income – because of additional costs of up to £2m month providing personal protective equipment and extra staff at its 120 residential homes.
He said the charity had not been able to access any of the government’s bailout funds and had been unable to access support for its extra costs from the local authorities and NHS bodies for whom it provides services under contract. “Without support we will face difficult decisions in the coming months,” he said.
Pro Bono Economics was set up to provide economic advice to charities. Its chair is the former cabinet secretary Gus O’Donnell, and its high-powered trustees include Andy Haldane, the chief economist at the Bank of England, and Clare Lombardelli, the Treasury’s chief economic adviser.
Its research is based on a weekly charity tracker survey set up just after the lockdown to monitor the pressures facing civil society. The latest tracker, carried out in early June, was based on data from 261 civil society organisations across the UK.
A government spokesperson said: “We recognise the incredible work that charities have done in supporting the national effort and how they are helping Britain bounce back.
“That’s why we are providing an unprecedented multibillion-pound package of support for Britain’s charities so that they can continue to help those in need. This includes £750m announced by the chancellor – £200m of which is open to bids from smaller charities. Charities can also benefit from other government financial support schemes, including the coronavirus job retention scheme and the coronavirus business interruption loan scheme.”