New PBE research out today examines

• where charity funding comes from
• what factors drive that income
• what is likely to happen to those driving factors over the course of the Covid-19 recession and recovery.

Almost half of the money raised by UK charities ahead of the pandemic came from the public. That in turn was split roughly 50:50 between money donated voluntarily (donations and legacies) and money earned (from charity shops and the like). The government accounted for a further 29 per cent of the charity total, investment returns added another 8 per cent, and the remainder was drawn from foundations, corporations and the National Lottery.

Looking at the decade after the financial crisis in 2008, PBE CEO Matt Whittaker, Chief Economist Jon Franklin and Economic Associate Mark Graham observed charity income and GDP appeared to move broadly in line with each other. Yet the relationship was not as straightforward as the headline trends might suggest. Income earned from the public consistently outperformed economic growth for instance, helped both by the surprisingly strong performance of the jobs market and by a concerted effort on the parts of charities to diversify income and develop new revenue streams based on trading opportunities. Conversely, charity income sourced from the government fell sharply – driven not by trends in economic output, but by political choices.

Drawing conclusions about charity income in the months to come has two complications. First, the composition of charity income in place ahead of the pandemic looked very different from that which prevailed on the eve of the financial crisis. Money raised from charity shops, events and membership fees accounted for around £1 of every £4 raised by the sector pre-pandemic, up from £1 in every £6 back in 2008. As a result, the charity sector has been particularly exposed to the current downturn – and will continue to be affected by restrictions on movements and trading activity for as long as they remain.

Secondly, the economic contraction associated with the pandemic has the potential to differ in important ways from that which followed the financial crisis. Rather than a long, broadly felt contraction characterised by wage stagnation, this time around we are more likely to see a very deep but shorter downturn that results in temporarily higher unemployment and falls more heavily on particular groups. Increased income volatility and inequality might be expected to act as a drag on public giving, as might any rise in the share of workless households. But this could be at least partly offset by evidence of increased saving among many higher income households. And the political backdrop is much-altered too. While the government’s pandemic response has massively increased UK debt levels, there appears to be less appetite for a rapid rebalancing and sharp contraction in government spending.

There is – inevitably – huge uncertainty about what comes next. But what does look certain is that the coming months and years will prove difficult for UK charities to navigate, requiring them once again to explore innovative new ways of operating, raising funds and delivering vital services to millions of people across the country. Alongside the volume of income raised then, the effectiveness with which it is both secured and spent will be a key determinant of the sector’s outcomes and impacts in the post-pandemic period.

Download this report