Estimated income shortfalls for the 2020/21 financial year
In May 2020, we developed a financial model to predict the impact of coronavirus on the income of some of Britain’s largest charities for the upcoming 2020/21 financial year. We uncovered that:
- Without help, 27 of the largest service-delivery charities in the UK faced an estimated £500m shortfall. We presented this finding in a private report to HM Treasury.
- Even with the furlough scheme, redundancies, costs savings, fundraising drives and government support, our subsequent interviews with 17 of these charities still indicated an estimated £155m-£200m gap.
- Charities fulfilling contracts for local and national government are better insulated, whereas charities who rely on public fundraising and charity shop trading are far more exposed to more significant losses.
Our initial model
Coronavirus has put charities of all sizes under severe financial strain. For some, the threat is existential. If they fail, or if services are hollowed out to a mere shell, then the most vulnerable in our society are the ones who suffer.
We wanted to better understand how the financial position of some of Britain’s larger charities has been rocked by the crisis. We wanted to assess what support they have gained from the government and the public, and to estimate the scale of what needs to happen to ensure they can keep serving the people who need them.
So, in May 2020, we identified a sample of 27 large charities where demand for their services could rise as a result of Covid-19. We reviewed their financial position to date and estimated their immediate financial path through the crisis (i.e. the next 3-6 months). We also examined their projections for the rest of the 2020/21 financial year. Our work was supported by the Gatsby Foundation.
We projected a total shortfall of over £500m across our sample of 27 charities. The scale ranges dramatically. Some have reserves to see them through, and therefore don’t face any shortfall, whereas others have a gap of over £100m.
Where the risks are
The shortfalls of individual large charities varied significantly based on which fundraising model they relied on:
- Charities fulfilling contracts for local and national government generally face a more positive picture on income. This is because many of these contracts have so far remained constant, although costs may have gone up.
- Charities who rely on public fundraising and charity shop trading are facing much more significant losses.
However, fundraising charities and trading charities are more likely to have built up some reserves, which they have been able to fall back on to lessen the blow from this crisis. We have written more about these differences, and the impact on the people charities serve, in a blog looking behind the figures.
We submitted our findings to HM Treasury to help inform their strategy for future funding. The charities who featured in our model agreed to be named in the submission, but we have anonymised and aggregated their submissions here.
Is the response working?
Following our initial model, we were able to contact 17 of the original 27 to learn how their position had changed since our initial calculations. Our initial model estimated that this group faced a £226m-£292m hole in their finances across the 2020/21 financial year.
As the crisis developed, charities took significant action through emergency fundraising, using the government’s furlough scheme, making redundancies, sacrificing salary, and cutting other costs. Some charities reported better fundraising than their initial forecasts over the period, although this may include ‘one-time-only’ emergency appeals. The charities in this sample also received a total of £43.75m from government sources. Some of this was from the £750m charity rescue package, although many are still waiting on the outcomes of applications to one or several of the government funds.
Even with government support and cost cutting, some of Britain’s largest charities were on average only able to close the gaping hole in their finances by just 38%. It is unlikely that will be enough, which means philanthropists and government need to continue working together to keep charities serving the people who need them.
At NPC we’re advising philanthropists on how they can best respond to coronavirus, view all of our free resources at thinkNPC.org/coronavirus.
We are grateful to the Gatsby Foundation for supporting this work.
NPC were recently asked by the Gatsby Foundation to look at what the impacts of the coronavirus crisis were on large service delivery charities. For some, the harsh effects are still a daily reality. Many others are worried about the oncoming fallout of this crisis.
The country is in a very deep crisis. At NPC we are working with philanthropists and partners on how they can more effectively fund charities now, and we want to hear your ideas about what more can be done.
In April, the government announced a £750m support package for charities. This report breaks down where that money is being spent and which funds are still open to applications at the time of writing.