OPINION: Ensure finances are in order

LISA HARKER, deputy director of the Institute for Public Policy Research

Last week, the Chancellor was forced to come clean about the state of the economy. But there's been air of pessimism in the finance departments of most charities for many months. Around five years of capital growth was wiped off charity funds last year. Such has been the impact of the stock market slump that the Financial Times has become compulsive reading in many charities, particularly in the 200 or so with annual incomes of more than £10 million.

The economic downturn has been a wake-up call for large charities to get their financial houses in order. The big guys have been left in no doubt of the need to ensure that their assets are invested in such a way as to generate a more stable and sustainable income.

And while the ups and downs of the stock market are of direct concern to only a small proportion of charities, the impact is disproportionate.

Investment income now accounts for a quarter of the total income of the charity sector. And since the financial health of trusts, foundations and much of the corporate sector has a major impact on the funding of almost all charities, there are few that have not felt the economic slowdown.

With three in four charities having an annual income below £100,000, most of the sector isn't concerned with realigning its asset portfolio but with ensuring their organisation's cash flow is such that they remain in the black. This is what most charity directors think about when you mention the word "capacity".

The long-term viability of the sector rests on there being fewer organisations in such precarious financial circumstances. Charities are increasingly being invited to play a bigger role in the reform of public services.

But innovation and effective performance is unlikely to be encouraged by such financial precariousness.

The Government has taken an important step in allocating more resources to modernise and build capacity in the voluntary sector. But the push for modernisation has to take account of the economic context. Otherwise only the big guys are going to be able to take part.

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