State of the UK Charity Sector in 2023

 It was reported that 90% of UK charities faced negative impact as a result of the pandemic, according to research by the Charities Commission.

‘90% of UK charities experienced some negative impact as a result of the pandemic’

Charity shops had to close their doors and most physical fundraising events were cancelled, which left many charities short of much needed funds, which in-turn meant that many people who rely on charities for food, clothing, AND support for physical and mental health were potentially not receiving the level of support that they needed.

The British Heart Foundation (BHF) was reported to have seen a drop of 40% in its income, and described 2020/21 as "the biggest challenge" in its history. The pandemic also saw the BHF reduce its spending by 42.2%.

One thing that did become apparent during the lockdown period – based on research by Charities Aid Foundation (CAF) – was that despite fewer people making donations (1.6 million less in 2020 from 2019), those that were donating to charities were giving more money per head. This meant that there was a slight increase of 6.6% in overall donations in 2020 (£11.3bn) from 2019 (£10.6bn).

However, the pandemic prompted a change in donor behaviour, with a collapse in cash donations and a significant rise in digital donations.

In November 2020, usually the biggest month each year for giving in the UK, there was a drop in the proportion of givers from 40% in 2019 to 30% in 2020. This was possibly due to the scaling back of both the Poppy Appeal and Children In Need, but regardless of the reasons, it was a significant drop.  

What do the charities say? 

Total number of registered charitable organisations in the UK in 2023 is 168,850 (source: statista.com). A figure which is very similar to that recorded in April 2022 (168,961).

At Markel Direct, we have been a trusted insurer of charity organisations for over 20 years. In May 2023, we ran a charity survey and asked UK charities what their experiences of the economic climate were so we could gauge what potential impact it was having on the third sector as a whole.

We’d like to thank the 375 respondents who took part in completing our short online questionnaire, which provided us with some interesting insights.

Financial confidence in the charity sector 

We begin with financial confidence simply because finances have been on everyone’s minds since the first lockdown in mid-March 2020. Now, more than three years later, the real effects of the pandemic are biting, and people, businesses, and charitable organisations are all struggling.

48.52% of respondents of the charity survey said they were confident about their organisation’s finances for the next 12 months, with a further 26.95% saying they weren’t sure. The startling figure was 24.53% said they were not confident in their organisation’s financial health for the forthcoming year.

If this figure was scaled up across the UK, that would mean over 41,000 charitable organisations could be struggling to survive this year.

‘A quarter of UK charities could be struggling financially in 2023.’

What impact is the struggling economy having on charity revenue? 

Unsurprisingly, almost two-thirds of charities said they had experienced a drop in revenues (62.91%) in the past 12 months, with 7.46% saying they had seen a loss of £5,000 or more.

This is not good news, especially after the two previous years when the pandemic would have significantly reduced revenues for many charities.

37% stated they had experienced a rise in revenue, but only 6% said they had seen a rise of £5,000 or more in the past 12 months.

When we think of charities, we can be forgiven for immediately thinking of the large national charities such as Cancer Research, Asthma + Lung UK, MacMillan, and others. However, it is the small charities, who serve their local communities, whom many people rely on more than they do the bigger charities. As a small organisation, a loss of over £5,000 can have a significant and detrimental impact.

‘Over 62% of charities say they lost revenue in the past 12 months.’

How many charities are struggling with rising costs? 

Unsurprisingly, 295 out of the 375 (78.66%) respondents said their charity had experienced a rise in costs in the past 12 months. It could be argued that it’s a surprise that the figure wasn’t slightly higher.

Charities saw a rise in costs in the following areas:

• Energy costs – 82  (27.8%)
• Raw materials – 55  (18.64%)
• Staff salaries – 23  (7.79%)
• Transport costs of products – 8  (2.73%)
• Travel costs for employees – 14  (4.75%)
• Other, not stated – 109  (36.95%)
• Answer left blank – 4  (1.36%)

17.05% of respondents said they had experienced a rise in their charity’s costs of over 30%, which would in itself put a significant strain on the charity’s finances while also meaning the charity would need to raise 30% extra funding to break even. This obviously isn’t happening if 62% of charities are saying they had experienced a reduction in revenues.  

Despite the rise in costs, only 15% of the respondents said their charity had needed to take out new financial support in the last 12 months.

Only 21.87% said they had not experienced a rise in costs in the past 12 months. Which begs the question, what had these charities done differently to the majority who had seen their costs rise?

What did the charities say were their biggest concerns?

While rising costs were cited as the main concern of 24.26% of respondents, it was the availability of third sector funding (or lack of availability) that was the main concern of 33.33% of those surveyed.

Other concerns included fewer people volunteering, with 19.47% of charities saying they were concerned by this trend. While 63.46% of all respondents said they had experienced a drop in volunteers in the past 12 months, which can result in charity shops not being able to open on certain days.

It can also mean that some charity events are unable to take place. Both of which would have a significant impact on the charity’s revenue and could force them to turn to third sector funding for help. However, if that funding isn’t readily available, then the consequences could be dire.

This downward trend in volunteering also saw 39.73% of charities surveyed saying they had struggled to retain staff and volunteers. This indicates that people are joining charities and getting involved, but not staying long-term.

11.73% of charity respondents said they were concerned by the trend in decreasing donations which was impacting the charity’s revenue. 76% of all respondents stated they had experienced a fall in public fundraising in the past 12 months, which adds to the woes created during the two year period of the pandemic when charities suffered huge losses in fundraising revenue.

The fall in the number of volunteers and difficulty in retaining staff has unfortunately forced 15.2% of non-profit organisations to turn service users and beneficiaries away, according to our survey.

15% may not seem like a large percentage, but if that trend is the same for all charities and non-profits across the UK, then that would mean an astonishing 25,665 charity organisations would have had to turn people away who needed help their in the past 12 months.  

What are the learning points for charity leaders?

Many trustees and senior charity leaders have faced, and in many cases overcome, significant challenges and will no doubt still be facing and making tough decisions in order to ensure their charities thrive and are able to give support to those who need it.

It is perhaps even more important for trustees and senior charity leaders in the face of significant external challenge to:

• ensure you are always led by your charity’s purpose and by the best interests of those you serve.
• not delay in making the tough decisions.
• be aware that how you make your decisions, and how you behave and communicate them, is as important as the action itself.

What third sector funding is available to charities and other non-profit organisations?

There is funding available for organisations from all business sectors. Typically, the difficult thing when you need funding or investment is knowing where to look for it.

Below are some sources of funding, and information about funding, that we’ve unearthed for charities and non-profit organisations in the UK:

• Esmée Fairbairn Foundation 
• Funding Circle
• Garfield Weston Foundation 
• Grants Online
• Percy Bilton Charity
• Supporting Communities  -  An online resource which lists up-to-date details of funding available to charities, non-profits, and community groups.
• The Access Foundation  
• The Bernard Sunley Charitable Foundation  
• The Directory of Social Change (Funds Online) 
• The Foyle Foundation 
• The Public Health Agency Scheme (NI)  
• The Social Investment Business  
• The Stable Company  -  An online resource that lists some of the key charitable funding organisations in the UK.
• The Which? Fund
• The Grants Hub  -  Information about voluntary sector grants in your area.

Additionally, there are funding opportunities currently accepting applications, such as CICs and community groups, and social enterprises.

You can also access and apply for government grant funding on Gov.uk. To avoid frustration, you will need to know exactly what type of grant you need and enter that in the search bar, otherwise you may struggle to find something suitable for your needs.

How can you protect your charity with Markel Direct’s charity insurance?

Charity organisations can protect themselves with Markel Direct’s charity insurance, which has been designed specifically to cover small charities, community groups and not-for-profit organisations from their daily business risks.

Charity insurance offers cover against a range of risks facing your organisation, including:

• Accidents involving visitors at a fundraising event, resulting in a personal injury claim being made against your charity (charity public liability insurance).
• Allegations of wrongdoing against a charity trustee and a subsequent investigation by a regulatory body (trustee indemnity insurance).
• Volunteers injuring themselves while working for the charity and being unable to work (employers' liability insurance).
• Service user alleging the charity provided sub-standard services and making a claim for compensation (professional indemnity insurance).

Few charities have the financial strength to pay the costs, damages and any awards made against them in the event of a claim. Charity insurance can provide cover for the costs associated with these scenarios, giving you the peace of mind that if something unexpected happens, your organisation will be covered.

Understanding the different types of insurance available to your charity can be confusing. If you’d like more information covering what insurance your charity should consider, you can find out more by following the ‘decision tree’ in our charity insurance guide.