The UK Civil Society Almanac 2012, published this week by the National Council for Voluntary Organisations, indicates that the voluntary sector is contending with increasing costs, driven in part by wider economic factors such as rising inflation.
The publication, which includes statistics on the sector, from its financial health to levels of volunteering and employee skills gaps, shows that voluntary sector organisations collectively generated a record income of £36.7bn in 2009/10, but their expenditure also hit a new high of £36.3bn, seemingly leaving many struggling to cover their costs.
The NCVO puts the rising costs down to two main factors. First, charities continued to invest in services to meet the additional need for their support caused by the 2008/09 recession; and, second, rising inflation forced up the prices of the goods and services that charities purchased. The NCVO estimates that inflation alone cost the sector £2.3bn between 2008 and 2010.
Karl Wilding (right), head of research at the NCVO and one of the almanac’s authors, says: "Inflation has made a big difference to the voluntary sector. They’ve seen their cost base rise as a result of the wider economic environment, which has left many struggling to keep pace."
He says the findings need to be taken into consideration by funders. "An awful lot of funding agreements have been level in cash terms, but these are cuts in real terms," he says. "Funders need to recognise that organisations’ costs are going up."
The party is over
The data also suggests that there was an initial reluctance among voluntary sector organisations to make cuts, particularly to staff, in the aftermath of the recession. In 2010, the number of people employed in the voluntary sector hit a record high of 765,000 – almost 100,000 more than in 2008. Figures included in the almanac show that voluntary organisations spent £14bn – about 39 per cent of their income – on employing staff in 2009/10.
Since then, staffing levels in the sector have fallen, unsurprisingly. Sir Stuart Etherington, chief executive of the NCVO, says in his foreword to the almanac that there has been a 9 per cent reduction in the sector’s paid workforce in the first three financial quarters of 2011 – the equivalent of eight members of staff being lost every hour of every day.
"When you look at the data it shows that the voluntary sector workforce grew quickly between 2001 and 2009," says Wilding. "Now the party is over and organisations are having to enter cost-control mode. One of the biggest savings comes from reducing staff costs."
The almanac also assesses the changing relationship between the voluntary sector and the state. Income from the public sector was £13.9bn in 2009/10, 38 per cent of total income. But the publication shows that the way money is awarded to the sector has changed significantly over the past decade: 79 per cent of statutory income in 2009/10 came from contracts rather than grants, compared with less than 50 per cent in 2001.
Wilding says the figures show that policymakers are wrong to say that voluntary sector organisations rely heavily on government grants to fund their work. "They need to change their story that we’re reliant on handouts," he says. "Almost 80 per cent of statutory income comes from contracts and not grants."
The almanac also estimates that government spending on voluntary sector organisations will fall by a total of £3.3bn between 2010 and 2015 – significantly higher than the £2.8bn predicted by the NCVO last August.
The publication indicates that the voluntary sector is highly cost-effective at generating income. It estimates that the sector spent £4.1bn on raising £17.4bn of funds in 2009/10. A total of £3.2bn of the £4.1bn went on fundraising and publicity costs with the remainder spent on managing investments (£250m) and trading subsidiary costs (£700m). The NCVO estimates that charities raised £5.45 for every £1 spent on generating income.
The data also shows that it took time for the economic downturn to begin to affect charities. In September 2008, 38 per cent of charities reported that they had been affected by the downturn, but by February 2010 this figure had grown to 59 per cent.
Wilding says the data shows that charities need to keep a tight grip on their expenditure in the years to come. "The sector hasn’t fallen off a cliff, but it has experienced a real-terms and cash drop since the recession," he says. "Initially it tried to deal with it by spending more, but now it has to switch to cost control."
- Read Andy Ricketts' Editorial about the Almanac's results