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Sector 'could face £2.3bn funding shortfall'

By Mathew Little and Hannah Jordan, Third Sector Online, 1 December 2008

Charities could be facing a funding shortfall of £2.3bn as a result of the economic downturn, according to accountancy firm PricewaterhouseCoopers.

A report published today by PWC, the Charity Finance Directors' Group and the Institute of Fundraising shows the sector is facing an uncertain future as the demand for services increases, corporate sponsorship founders and individual donors withdraw regular donations in response to the recession.

PWC said  the downturn could bring a funding shortfall across the whole sector of up to £2.3bn next year.

The report, Managing in an Economic Downturn, also predicts that charities have less time to prepare for the impact of the recession than they did in the early 1990s.

The lead time between the beginning of the recession and the full impact on consumer spending will be shorter in the current downturn than it was in the recession of 1990 to 1992, it claims, but this recession will be just as prolonged as the last one. The report argues, however, that charities still have several months to prepare themselves for the likely drop in income.

PWC asked more than 360 charities how they expected to be affected by the downturn and how they were responding. Almost 90 per cent of respondents said they expected investment income to decline or remain static.

A further 71 per cent of respondents said they had taken some action in response to the current economic climate. Of these, 32 per cent planned to put capital projects on hold, 61 per cent planned to restrict recruitment and 68 per cent planned to restrict the number of agency and consultancy staff. Many had introduced a blanket freeze on recruitment.

Three per cent said they were unsure if they would survive the downturn.