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News analysis: Sector must prepare for hard times

By Ben Cook, Third Sector, 3 September 2008

News analysis: Sector must prepare for hard times

Experts say that charities must work hard at legacies as the economy worsens. Ben Cook reports.

With more doom and gloom enveloping the UK economy, charities are bound to be increasingly concerned about their future fundraising prospects. Figures released last week by the Nationwide Building Society showed that house prices had fallen 10.5 per cent in the past year, and research by the TUC showed that more than one in 10 employees are "not confident they will still be in their job in a year's time".

The worsening economic conditions are also having an adverse effect on charities' fundraising activities. A Cass Business School report has revealed that most sources of charity income are "already under financial strain from a recessionary economic environment".

The Cass study, Charity Market Monitor 2008, warns that charities could experience even lower growth next year than they have experienced in recent times. In 2006/07, the fundraising income of the largest 300 charities was £4.7bn, showing an overall real annual growth of only 1.2 per cent. To put this into perspective, almost one-third of the largest 300 fundraising charities experienced a "reduced real fundraising income from the previous year".

Review and adapt

How should charities combat reductions in their income? The Cass report, which was released in July (23 July, page 7), says charities should review and adapt their funding strategies in the light of the economic forecast, partly with a view to persuading donors to continue to prioritise charitable giving. This can be done, it says, by providing "clear information on need, effectiveness, impact and the potential effect of recession on beneficiaries".

It also says that legacy income is the crucial element of effective fundraising. "Legacy income is central to charity fundraising success in the current environment, and more should be invested in raising public awareness of the future value of a charitable bequest made today," it says. It is also important to note that the average annual real growth in the top 100 legacy incomes between 2002/03 and 2006/07 has been only 3 per cent, compared with 7 per cent in the late 90s.

In 2006/07, the top 300 fundraising charities experienced legacy income growth of only 1.2 per cent in real terms. The report also shows that legacy income is the largest source of fundraising income for the 300, accounting for just over a quarter of their total income from fundraising. The report adds: "Legacies are a major determinant of fundraising success, with the group of charities whose income increased last year deriving 30 per cent of income from this source, compared with 17 per cent amongst those whose income decreased."

Cathy Pharoah, author of the report and co-director of the Centre for Giving and Philanthropy Research at Cass, says: "It's important for charities to raise the awareness of the importance of legacies with the public because legacies do help charities through short-term funding fluctuations."

She says that promoting legacy funding is particularly pertinent because society is undergoing "huge intergenerational wealth transfer - the baby boomers are the first great property-owning generation".

Pharoah says charities should encourage financial advisers to do more to publicise the tax breaks associated with leaving a will. "Charities should raise the issue with financial advisers about how clients can benefit by making legacies," she says.

Richard Radcliffe, director of legacy consultancy Smee & Ford, says that, when economic conditions decline, legacies become an increasingly popular way to fund charities. "In times of recession, when there is a lack of cash, legacies are a preferred method of giving because it costs nothing now," he says. But he warns that the size of legacies could shrink as people struggle with their finances. "It's likely they will be leaving smaller legacies because they won't feel they have much money," he says.

The Cass report highlights other ways in which charities can boost their income, including building support in local communities. "Evidence shows the strength of giving for some local causes and indicates scope to raise more community support where charities build a strong local presence focused on perceptible local benefits," the report says.

Pharoah says charities should also tell donors it is important that they keep giving. "Charities should make sure that cutting charitable giving is not the first thing people do," she says. "The services charities provide are important." However, she says charities must present a united front when conveying this message: "It should be done collectively by the big fundraising charities, rather than through individual hard luck stories."

- See Letters, page 13.