Gold dust—Part 1: Why the sector needs more unrestricted funding

It is a core NPC belief that unrestricted funding is incredibly valuable to charities: it allows them to be more responsive, more agile, more independent, and more forward-thinking. NPC itself relies on unrestricted funding from a small group of individuals who support its mission and allows us to shared our thinking through topical reports, such as The Chancellor’s choice.

People who have worked in a charity with lots of restricted income understand just how useful it can be. George Monck, the CEO of CleanupUK (which is supported by one of NPC’s clients) says ‘I always think of unrestricted funding as being worth twice the value of the grant—unrestricted funding is the icing on the fundraising cake.’ Unrestricted income means not worrying so much about cashflow, being able to give high-performing staff a pay rise or respond quickly to changes without having to check first with funders.

Back in 2009, I co-authored Granting success which looked at unrestricted versus restricted grants. Recently, I have become concerned that the situation is now worse than it was when I wrote this report. For many of the small charities that NPC’s clients fund, these donors are now the main source of unrestricted funding. These charities have seen the core grants they used to receive from local authorities all but disappearing. This shift is also affecting other charities. The amount of grants local authorities give to charities has fallen from £3.9bn in 2008 to £2.6bn last year—many local authorities have moved to contracting for services instead.

Local authorities have made this change because of the pressure to show value for money. That’s understandable, it’s our money they’re spending after all, and one of the good things about restricted funding is that you know in advance what it is being spent on. But independent funders and donors have a great deal more freedom and do not have to give a restricted grant as the default.

In Granting success we outlined some questions that funders can ask themselves to explore whether they can offer unrestricted grants. Funders who have done their due diligence on an organisation, and share similar aims with their grantees, should be considering whether an unrestricted grant would have a bigger impact.

As our recent report on public sector commissioning showed, the charity sector is experiencing many changes at the moment. Local authority income streams are being cut, public fundraising is facing criticism, and new models of funding such as social investment require a significant planning and due diligence. From recent conversations I’ve had with funders, it is clear that many are worried about how no one has the time to plan. One potential way donors and funders can help charities to find the headspace many so desperately need is by providing unrestricted grants.

CleanupUK has found its unrestricted funding vital for planning its development. ‘Unrestricted funding is invaluable to a young charity like CleanupUK as it gives us flexibility as we grow and develop our fundraising. It also affords us the potential to build reserves and, therefore, sustainability.’ As we’ve said before at NPC, charities need to be planning ahead on how they are going to survive these changing times. Funders have a role in helping them.