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How will COVID-19 shape the future of the UK charity sector?

15 May 2020: As part of a charity sector special, ICAEW Insights looks at how coronavirus has exposed vulnerabilities in charities’ funding models and how the sector is adapting to the ‘new normal’ in order to help others.

In the immediate future, cash is king. For many charities, cashflow planning is now crucial to survive the coming months. The pandemic and the restrictions imposed by the government affect different types of charities in different ways, but many have suffered a sudden and sustained loss of income from sources as diverse as public fundraising, events, shops and visitor attractions. The National Council for Voluntary Organisations estimates there will be a £4bn funding gap in the first 12 weeks of the crisis alone and many charities now require financial support to survive.

With a greater understanding of predicted bank balances, charities can take action to mitigate cash shortfalls by renegotiating terms and payment schedules with their funders or by taking advantage of the government’s support measures. The government has confirmed a funding package worth £750m to frontline charities in addition to non-sector specific measures such as delayed VAT payments, the job retention scheme and business interruption loans.

From the start of the crisis, charity infrastructure bodies united to urge the government to provide a package of support for the charity sector that bridges the funding gap, and they continue to advocate for the sector and provide valuable guidance. Charities are advised to keep abreast with the evolving support measures and to take advantage of those most suitable to their own circumstances.

Adapting to the new reality

Charities quickly adapted their services to the changed needs of their beneficiaries, by delivering food supplies and prescriptions to vulnerable community members, providing training, counselling, and advice services online, and by streaming cultural events to our living rooms. Their staff have embraced new technologies and ways of working, and governance has become nimble, with more frequent communication between trustees and staff taking place.

Charitable funders rallied behind a pledge to support their grantees with less restrictive funding terms and launched appeals to support local charities and grassroots organisations with core grants. Partnerships between charities help service users access support more seamlessly, for example by adding debt advice and mental health support to the offer of food banks.

Trustees have a duty to prioritise the interests of their charity’s beneficiaries and we are likely to see an increase in mergers and acquisitions to ensure the continuation of service provision where charities cannot survive in their current forms.

Longer-term impact on the sector

COVID-19’s impact on the economy is expected to be severe. Sustained unemployment and increased poverty would reduce the budgets of charities’ largest funders: the public and the government. Many charity leaders are forced to make difficult choices on what services to cut, fully aware that, for their beneficiaries, they have become an emergency service after prolonged austerity.

Charities are an essential part of society and provide many services on behalf of the state under government contracts. If charities fail, it is their service users and society that will suffer the consequences.

The overwhelming public response to the call for NHS volunteers and the millions donated to the sector, including Captain Tom’s fundraising success, show that we have an innate desire to support each other. Time will tell whether this will translate into a sustained rise in volunteering and giving levels. We may also see a shift in focus of public giving, perhaps towards local organisations and social welfare charities. Despite the global nature of the crisis, donors may direct their support closer to home in the aftermath of the crisis.

It is still too early to understand the impact of this crisis, not just on the charity sector but on our society and global inequalities. The virus itself may not discriminate, however, the circumstances of those that were already disadvantaged mean that this crisis will hit them harder. As charities adapt their service and business models to the changing environment, we must ask ourselves what kind of society and world we want to live in, and what this means for the relationship between society, the state and the voluntary sector.