Proportion of charities with no reserves has more than tripled during the pandemic, regulator warns

The proportion of charities with an income of more than £500,000 that have negative or no free reserves has more than tripled during the pandemic, new data shows.

The figure emerged in a written submission from the Charity Commission to the House of Lords Special Bill Committee, which is scrutinising the Charities Bill.

In the submission, the regulator said that “the impact of Covid-19 on charities has not been uniform and its full effect is yet to be seen”.

But it said the number of charities with an annual income of more than £500,000 that had no or negative free reserves had increased from nine per cent in April 2020 to 28 per cent in July this year.

The regulator also said it had seen evidence of innovation in the sector, including charities working in partnership and adopting digital approaches to fundraising and service delivery.

The regulator also pointed out that it had received more than 8,000 applications to register a new charity during the pandemic, which the regulator said demonstrated “a continued desire among the public to help their communities through charitable endeavours”.

The commission said it was “very supportive of the bill” and “will be ready to implement these changes on a staggered basis after the bill gains royal assent”.

When the bill was announced in May, the government said the changes made would “address a range of issues in charity law which hamper charities’ day-to-day activities, by implementing the majority of the recommendations in the Law Commission’s 2017 report Technical Issues in Charity Law”.

The Law Commission made 43 recommendations aimed at removing inappropriate burdens to save charities time and money.

In March the government announced it would accept all but six of the Law Commission’s proposals.

The rejected suggestions included considering a review of charities’ right of appeal against decisions made by the regulator.

The main elements of the bill, which covers charities in England and Wales, would include changing the law to help voluntary sector organisations amend their governing documents more easily, with Charity Commission oversight where appropriate.

The legislation will also increase flexibility for how charities use their permanent endowment, remove legal barriers to charities merging, and give trustees advance assurance that litigation costs in the charity tribunal could be paid from charitable funds.

In its written evidence submission the commission said the estimated cost of the changes will be between £700,000 and £800,000, as it expects to produce 30 pieces of new or updated guidance as a result.

The legislation is expected to deliver cost savings for charities of at least £28m over its first 10 years.

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