Sizing up the downturn

By John Copps 2 October 2009

Two years since the run on the high street bank Northern Rock plunged the UK economy into crisis, there are signs that things are beginning to pick up. Enormous queues seemed to have returned to the south London branch of IKEA and I’ve started to enjoy reading the papers again.

As the number of jobless continue to rise, we’ve heard a lot about how employment is a lagging indicator. Similarly, I think recession in the charitable sector will lag behind other parts of the economy.

Recent research suggests that giving in the UK has dropped by 11% over the past year. But more trauma – in the form of massive cuts in public expenditure combined with a fall in grant-making – is still to come.

So who will be the losers as the squeeze continues? When we look back in a few years time, I think that the biggest casualties will be medium-sized charities.

Small organisations – those with an income of less than £10,000 and that make up around 90% of the sector – are used to living on the edge. For many of them, a fall of income might mean going back to the kitchen table but it will not be fatal. And the largest charities – with their diverse income streams and hefty reserves – are in a position to ride out the recession, even if it does mean making cuts.

Medium-sized charities are stuck in between – in what I recently heard described as the ‘killing fields’. They are too big to get by with odd grant, but are also not large enough to manage significant public sector contracts or attract substantial public support. They will have to work hardest to survive and seem more likely to cut staff, merge with another organisation, or shut down.

The legacy of this recession will play a major part in shaping the charitable sector for years to come. Medium-sized charities look set to be hit hardest. Among them, those that flourish will be those that can best demonstrate the value of their work and are nimble enough to respond to the changes that they will inevitably have to make.