Earned income is rising, and grants are flat

This UK Civil Society Almanac 2008 reveals that, contrary to popular belief, charities are more likely to succeed in prosperous areas than in deprived ones. But statistics also show that many smaller charities may be struggling.

It is a long-held belief that charities are born out of need and that they are therefore more likely to be found in poor areas than in rich ones. However, The UK Civil Society Almanac 2008, published today by the NCVO, suggests the opposite is true.

Researchers calculated the density of charities in different postcode areas that, according to the Office for National Statistics, share the same characteristics. They discovered that, contrary to popular belief, wealthier areas had more charities per head than poor areas.

"This would indicate that charities generally form where there is prosperity rather than where there is need, and seems to go against popular assumptions about charity," says the almanac.

Even when the exercise was repeated to analyse charities with incomes of less than £1m to prevent the results being skewed by a glut of large charities in big cities, the conclusion was the same.

This is one of the most surprising findings of the new-look almanac, which for the first time attempts to analyse broader civil society instead of just charities.

The almanac, which relies heavily on data from GuideStar, estimates that there were 865,000 civil society organisations in 2005/06, generating £108.9bn. About 164,000 of these were charities with a combined income of £31bn - up 10 per cent from £28.3bn the previous year.

Civil society employed 1.35 million people, or 6.4 per cent of the workforce. "It is a major employer, on the same level as the primary and secondary education sector and larger than the banking and accountancy industries combined," the almanac says. Charities alone employed 611,000 people in 2005, 26 per cent more than they did in 1995.

Some of the charity themes that emerge, such as overall income rising despite individual giving remaining fairly static, confirm what other sector surveys have said. Few people will be surprised to discover that grant income was flat or that, for the first time, earned income accounted for more than half of the sector's income. Goods and services, membership fees and contracts were the main sources of earned income.

The NCVO attributes this to charities becoming more entrepreneurial and to "the shift to contract-based funding increasing at pace". It adds: "Government policies have helped to create the conditions for the sector to increase its involvement in service provision." However, the NCVO says there is no evidence that charities are losing their independence by becoming too dependent on state funding, which generated 36 per cent of charity income. The almanac says: "Over half of the largest charities receive little or no funding from the state, dismissing the idea that large charities are an arm of government."

The increase in earned income is given as the main reason for the healthy 10 per cent growth in overall charity income. But beneath this headline figure emerges a picture of a struggle for survival by many charities. Three out of five of the smallest charities, and nearly one in five of the largest, cut their expenditure between 2004/05 and 2005/06, suggesting sharp falls in the amount of money available. Oliver Reichardt, research manager at the NCVO, says the volatility of funding is a major problem.

Although spending on publicity and fundraising rose by £300m, this was due almost entirely to substantial increases from a few large organisations. The vast majority reduced the amount spent on these areas as a proportion of total expenditure: 19 out of 20 charities in the lowest income band did so. This could be interpreted as evidence that many small charities in particular are struggling.

"The sector is doing well and is healthy, but beneath the surface a lot of charities are not doing well, and they need help," says Reichardt.

 

The numbers

 

278%: The percentage by which charity investment management costs rose year on year. They went from £88m to £333m. The researchers speculate that this indicates charities taking investment decisions more seriously. Returns on charity investment assets increased by 3.4 per cent

£31bn: The amount of money generated by the 164,200 general charities in England, Wales, Scotland and Northern Ireland in 2005/06. The figure increased by 10 per cent on the previous year

50.3%: The proportion of charity funding generated by earned income, which exceeded 50 per cent for the first time. This was largely due to the shift from grants to contracts. Voluntary income rose at a much slower rate

35%: The increase in charity income in Yorkshire and the Humber. The south west (15.5 per cent), the east of England (13.6 per cent) and the east midlands (10.4 per cent) also enjoyed double-digit growth, but income fell by 4.6 per cent in Wales and 3.4 per cent in the north east

35.7%: The proportion of charity income derived from government. Local government was the biggest source of state funding, providing almost 50 per cent, and 40 per cent came from central government. More than half of all charities received no statutory income, and a third said they were heavily reliant on it

94%: The proportion of charities in the smallest income band that cut spending on fundraising and publicity. Only three in four charities in the largest income band did likewise, suggesting that the overall charity sector was performing well, but many organisations were finding it tough.

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