Trustees of large charities that are heavily reliant on public sector funding must take measures to avoid finding themselves on a "financial cliff edge" when the current spending round ends, according to Dame Suzi Leather, chair of the Charity Commission.
Leather was commenting on the commission's fourth Economic Survey of Charities, published today. In contrast to the NCVO's charity forecast survey, also published today, the commission's poll of 1,000 charities shows increasing confidence in the sector's economic position, with 86 per cent reporting optimism about the next year - up from 69 per cent six months ago.
But Leather said the confidence might be misplaced because severe cuts clearly lay ahead in both local and central government funding when the current spending round ended in March next year. She said that 32 out of 62 council executives had identified voluntary sector funding as vulnerable in a recent BBC survey.
"There is a real concern that charities that receive money from the public purse to fund their work could find themselves at a financial cliff edge in March 2011," Leather said. "Optimism is very important, but it must be matched by a recognition of the reality of the financial situation. We want trustees to channel their formidable energy into doing all they can to protect the valuable work of their charities."
The commission survey shows that funding from the public sector is the most important income stream for 24 per cent of charities with annual incomes of more than £100,000. Leather said these charities should try to diversify their income streams, collaborate to reduce costs and take steps to increase their chances of winning local contracts.
Large charities have been hit hardest by the recession, with 79 per cent feeling its impact - compared with 59 per cent of all charities. Of those large charities saying they'd felt the impact of the recession, 68 per cent said their income had dropped.
Large charities are also the most pessimistic about future funding, with 28 per cent expecting a fall, compared with only 14 per cent of small charities. But larger charities were also significantly more likely to have put measures in place in response to the recession.
International, health and social service charities have been the worst affected by the recession, with investment income continuing to be the hardest hit income stream, according to the research.