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Losses, uncertainties and opportunities

Third Sector, 7 January 2009

Paul Amadi at the Third Sector Recession Watch Panel

Third Sector's Recession Watch Panel met to examine the effects of the recession and will continue to meet every three months. Tristan Donovan reports.

With economic gloom sweeping the nation, Third Sector's Recession Watch Panel met for the first time just before Christmas to debate what damage the recession would do to charities.

Several members of the panel felt there was a gap between what people perceived to be happening and what was actually happening to the sector's voluntary income. Voluntary donations, for example, were holding up.

"The amount is staying broadly where it is," said Paul Amadi, director of fundraising at the RNIB and chair of the Institute of Fundraising. "The most public demonstration of that has been the amount raised by Children in Need, which stayed ahead of where it was last year."

Others agreed, but wondered if this situation would last. Paul Breckell, executive director of finance at the RNID, said voluntary income held up in the recession of the early 1990s, but warned that this recession felt different. "It is only just beginning to unfold and the Treasury believes there will be a sharper entry to recession than in the early 1990s," he said. "Public confidence is much lower."

Other sources of income, however, were already being squeezed. "There's been an immediate impact for charities reliant on anything with a direct link to property prices or the value of investments," said Jon Sparkes, chief executive of Scope.

The panel said there had been a decline in the value of legacies, mainly because of falling house prices, but little change in their number. Sparkes said the falling value of gifts left in wills meant Scope's legacy income was £500,000 lower in 2008 than the previous year - a decrease of 10 per cent.

Falling share prices would also hit some grant-making trusts and foundations, the panel agreed. "Foundations and trusts try very hard to make long-term plans and expect to ride ups and downs," said Dame Mary Marsh, founding director of the Clore Social Leadership Programme. "But the severity of the downturn is so great that, while the current income position is all right, the real test will come when trusts and foundations meet to decide how much they can release going forward."

However, Amadi said trusts that made long-term investment decisions would not be so badly affected by the recession. Jay Kennedy, policy officer at the Directory of Social Change, also noted that charities with existing grants over several years would see little change. Charity shops, the panel agreed, were likely to find themselves having to deal with more shoppers, but fewer donations.

Statutory uncertainty

The future of government funding proved a contentious issue. The Comprehensive Spending Review has already cemented much of the Government's spending plans for the next few years, but Marsh wondered if less money would be available after the review period ended in March 2011.

Panellists disagreed on the likely consequences of November's Pre-Budget Report. Kennedy said the Treasury's push for more efficiency in the public sector could leave local authorities with less money to spend. Amadi thought the Government's emphasis on pumping money into the economy through programmes such as the refurbishment of schools could be a sign that councils would loosen their purse strings. But Breckell said there was often a lag between the announcement of fiscal stimulus measures and their implementation. Organisations already providing services for government could also face problems, added Marsh. "Some contracts have performance targets that could have been achieved in times of full employment, but haven't got a hope now," she said.

The panellists agreed that the sector needed to be realistic in any bids for Government help - a large-scale bailout, they said, was neither necessary nor desirable. "The sector has a lot of resources to deal with what it is facing," said Marsh. "There is a danger that if you ask for too much, you get even less." Kennedy said guidance to ease local authorities' "paranoia" that EU procurement rules limit their ability to give grants to support charities would be useful. Sparkes suggested the creation of a fund similar to Futurebuilders that could provide fast, short-term relief to charities that would otherwise have to close services for vulnerable people.

Survival of the fittest

Financial pressures were likely to subject the sector to "Darwinian" forces, said Amadi, and medium-sized charities were the ones most likely to feel the pressure. "They don't have the capacity of the larger organisations to cope, or the agility of smaller organisations to compensate, so they will get the worst of both worlds," he said.

Sparkes added that there was also likely to be pressure on medium-sized organisations to become either more nationally or locally focused if voluntary donations became more polarised. Kennedy said he feared that 'quality of life' organisations such as arts charities would suffer most because people might see them as luxuries, and that social enterprises would have to contend with the same problems as other trading businesses. The panel agreed that mergers, particularly of medium-sized charities, would become increasingly common as the recession deepened.

But there was widespread agreement that these pressures were not inherently negative. "They could force organisations to make very tough decisions that they have put off up to now," said Amadi.

Marsh agreed: "Economic turbulence like this brings opportunities too. There will be opportunities for new ways of working and for those who anticipate what is coming."

Simply slashing budgets was not the same as adapting to financial pressure, said Amadi: "Such short-termism does not bode well for the sector in three years' time." Sparkes agreed: "Sometimes the answer isn't to cut this or close that. The way forward can be about taking more daring steps. Now could be the time to take risks."

Marsh, however, urged caution. "It's critical to ensure you will be in the right place at the other side of the recession, and that's why you should sometimes stop doing some things," she said. "You have to be ready to take tough decisions."

But she said campaigning was one area the sector should not cut back: "However tough it is, this mustn't be a time to suspend campaigning. This is the time to influence the political debate. The last thing you do when you're trying to get people to understand that change is needed is to stop talking about it."

RECESSION WATCH PANEL

- What is it?

A group of voluntary sector leaders meeting every three months to examine the effects of the recession

- Who's on it?

The panellists at the first meeting were:

Paul Amadi, director of fundraising, RNIB, and chair, Institute of Fundraising

Paul Breckell, executive director of finance, RNID

Jay Kennedy, policy officer, Directory of Social Change

Dame Mary Marsh, founding director, Clore Social Leadership Programme Jon Sparkes, chief executive, Scope.

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