Cathy Pharoah: How do we explain the growth in the sector's income?

The Charity Commission's latest figures are more about new entrants to the sector than general financial health, writes our columnist

Cathy Pharoah
Cathy Pharoah

With some recent indicators suggesting a small amount of economic growth in the UK, the Charity Commission's quarterly statistics showing sector income growth of 3.7 per cent have been viewed as a good news story.

I don't agree - economic growth refers to an economy that is getting bigger but not necessarily better. What the commission's figures show primarily is that more than 90 per cent of the £2.4bn increase in quarterly income, compared with the same period the previous year, occurred among the largest charities - those with incomes of more than £5m. These represent only 70 per cent of charitable income.

You might think this is more evidence of the biggest getting bigger, but I don't agree with that either. The difficulty with presenting sector income by bands is that you can't tell what is happening within them. Growth in the largest band could mean there are major new entrants, but reveals nothing about existing charities in that band. And if growth is occurring partly because of new entrants, what does that tell us?

Searching the commission's register, it appears that of the largest newly registered entrants in 2012/13 - those with incomes of more than £10m - half were colleges or schools, one was an education funding body, one was a charity aimed largely at funding higher education and two were large social care providers.

The increasing presence of health and education bodies with private or public sector funding can also be seen in the commission's list of the 10 largest charities. This includes Nuffield Health, the Arts Council, Cardiff University, the Charities Aid Foundation (the inclusion of which is misleading, because its funds are in transit to thousands of sector organisations) and the United Church Schools Foundation.

Only four high-profile charities are on the list - Cancer Research UK, the National Trust, Save the Children and Oxfam. These have always been among our top charities.

Some of the growth in the top band might be attributed to charities moving up from the band below. It would be helpful to know if this were true, as long as we also knew about those going in the opposite direction.

Voluntary income is sometimes used to indicate what is happening to donations and fundraising. But it contains substantial grants from public and quasi-public bodies, and might reflect the growing presence of health and education entrants. So there is little to support the idea that "the biggest are growing at the expense of everyone else".

Overall income is more likely to be the sum of parallel but different income tracks. I welcome the commission's increasingly detailed and accessible presentation of sector figures, but we need a lot more. Clearly, the sector's boundaries are expanding, but that says little about the financial health of its sub-systems.

Cathy Pharoah is professor of charity funding at Cass Business School

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