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The charity sector has played an increasingly important role in helping society in 2014, demonstrating the breadth and depth of services that the sector provides as rarely before. The resilience of the sector in continuing to deliver despite the challenging environment has been clearly demonstrated, and I expect this to continue into 2015.
The generosity of the UK public continues to underpin the charity sector, with 74 per cent of people having donated to charity in the previous month in the recently published World Giving Index, which ranks the UK joint 4th with Ireland.
This declined slightly on 2013, but consumer confidence has increased, with household consumption having increased for 13 consecutive quarters – households have been using up precautionary savings built up since 2011 to spend above their income. Higher house prices and lower unemployment have been important factors in restoring confidence, which should be a positive indicator for 2015, although earnings growth remains subdued.
I expect growth in GDP to slow gradually, with inflation remaining stable and close to, but below, the Bank of England’s target. For charities, returns on investment cash are set to remain low.
Regardless of the outcome of the general election in 2015, the successful party or parties will still be faced with the need for continued austerity. The impact of austerity has already been felt across the sector, but continued cuts will be the expectation, particularly for those charities engaged in public service delivery. The winners will be those that can respond to this environment in new ways, changing the nature of the contract delivery rather than simply trying to do the same with less.
In 2014 we have seen a significant increase in the number of enquiries about debt, and we expect this to continue in 2015. The changing nature of contractual cash flows, and an increasing trend towards more commercial functions, is likely to give rise to an increased funding requirement, and we could see more charities borrowing money, either through traditional bank finance or social finance. This is expected to increase the risk register of the sector, but can lead to significant opportunities being realised earlier and funding to deliver vital services to beneficiaries being secured.
I expect some of this debt to be used for growth strategies, with investments in fundraising programmes and commercial operations. This will increasingly become a differentiator between those that have the scale and balance sheet strength to be able to invest in their futures and those that are unable to. We will see a continuation of the squeezed middle that we have seen in 2014: the largest charities, with strong brand names and an ability to invest in growth, will succeed in increasing revenues ahead of inflation. Smaller, regional charities without the same scale of resources to invest will struggle to invest in fundraising and build capacity. The ability to show a surplus at year-end and build financial capacity has never been more important, while the sector responds to an increasingly challenging environment.
Retail outlets are likely to remain an important source of revenue for many charities. In the retail world, the clear trend is towards developing click-and-collect models for consumers. It will be interesting to see how charity shops can adapt to this trend and develop a similar model.
Finally, we see an increasing move towards mobile payments, and we see this accelerating fast. Donors are becoming more reliant on mobile as the technology develops, with near field communication and apps such as Barclays Pingit and PayM becoming more mainstream. Children in Need 2014 saw record levels of donations through Barclays Pingit and charities will increasingly need to consider their mobile payment strategies so that they can benefit from donors who want to make donations by mobile.
We’re looking forward to 2015 and continuing to support the sector and our clients.
David McHattie is head of charities at Barclays