Andy Haldane, Chief Economist of the Bank of England and co-founder of Pro Bono Economics, has today outlined findings from new research into the savings households have amassed over the last year.

Haldane has previously identified unleashing households’ huge savings windfall as the one of the keys to turbocharging the UK’s economic recovery from the pandemic. This new research from Pro Bono Economics sets out the scale of the challenge facing the charity sector as it attempts to plug the £10billion funding gap that emerged at the height of the pandemic last year.

The findings from PBE suggest that households are likely to donate between 0.2%-0.5% of the £200-250billion in excess savings built up over the course of the pandemic. If realised, this would provide a welcome boost to the charity sector of between £500million and £1.2billion. However, this would not go far in plugging the hole left by the cancellation of in-person fundraising events and the closure of charity shops, which severely reduced the sector’s income.

Examining a range of options to channel more of this capital into the charity sector, Haldane suggests running a public campaign to generate a new “social norm” around giving - aimed especially at “nudging” older and richer households who have generated a significant pool of extra savings during the pandemic.

PBE’s research suggests government should also explore a temporary expansion of Gift Aid, similar to the temporary Millennium Gift Aid introduced between 1998 and 2000. It estimates that a temporary uplift in how much government matches donations through Gift Aid from 25p to 30p for every £1 donated could increase income for charities by around an additional £600million per year – potentially doubling the projected flow of lockdown savings to the charity sector.

The research also advocates greater use of behavioural insights by the charity sector to harness these households as potential donors. Studies suggest that peer effects, such as hearing others talk about having donated, can help influence more people to give money and time. Research focused on online giving platforms, for example, found that a £10 increase in the average of past donations increases new donations by £2.50 on average.

Speaking at Pilotlight’s Power of Charity conference, Haldane also highlighted the work of the charity sector to support the country over the course of the pandemic – from the 436,000 hours donated by volunteers to England’s vaccination efforts to the one-third increase in use of Trussell Trust food banks. The latest figures from the Pro Bono Economics COVID Charity Tracker survey indicate that around 4 in 10 charities have experienced an increase in demand for their services, as more people turn to them for more help. And that demand is expected to remain high throughout the next year.

“The Covid crisis has generated a significant pool of extra savings among a number of households, especially older and richer households, due to restrictions on spending. Balanced against this, among poorer and younger households, savings have actually fallen as a result of the Covid crisis, to tide over cashflow shortfalls. This has been accompanied by a rising fraction of indebted households.

“With a significant financing gap for charities to bridge, this begs the obvious question of whether more could be done to mobilise that pot of savings for charitable good. A number of ways of doing that are possible. One option would be to run a coordinated campaign to encourage more charitable giving. Past research has illustrated the power of behavioural economics – or nudges – in increasing incentives to donate. One potential way of nudging is to run a campaign to generate a new ‘social norm’ around giving.

“A second response option would be to consider a temporary extension of the incentives to give charitably. This has happened previously – for example, the Millennium Gift Aid policy between 1998 and 2000 provided tax relief to support charities helping developing countries.  Alternatively, Government could drive a publicly-funded donation match programme. If you take our estimate of a giving boost from those “windfall savings” of £0.5-£1.2billion and imagine that this is leveraged by matched funding from Government, you’re talking real money. The result could be a rise in charitable income of closer to £5billion.

“Of course, these are only examples. Perhaps there are better schemes out there to mobilise these moneys. But the key point is that these are examples of the kinds of imaginative thinking I think are now needed. Covid has generated an inflection point for societies and, potentially, for the charity sector too. It is hard to think of a better time to be unlocking the potential of the latter in support of the former, to enhance the power of charity.”

 On the contribution of volunteers, Andy said:

“When it comes to unlocking that potential, events during the Covid crisis have, interestingly enough, shone a light on what is often hiding in plain sight. As at past times of crisis, civil society has risen to the challenge of the global pandemic, playing a crucial role in supporting those most vulnerable. Charities have repaired holes in the fraying social fabric, building social and civic capital at the same time as so much damage was being done to the health, wealth and happiness of many people.

“Let me give just one more example of how the sector has risen to the Covid challenge: the UK’s vaccination programme. Many have, rightly, been lauded for their contribution to this fantastic collective effort, including the NHS, universities and pharmaceutical companies.  But another of the heroes have been the vaccine volunteers helping organise the roll-out, who together have given perhaps half a million hours of their time. The volunteers from the London 2012 Olympics were the Games Makers. The vaccine volunteers have been Gamechangers for our spirits.”

On the value of the charity sector, Andy said:

“When it comes to charities’ contribution to our economy, my starting point is that this is systematically and significantly under-estimated in our National Accounts, under-appreciated in our public discourse and under-represented in our public policy discussion. In other words, relative at least to the public and private sectors, the charitable sector is third by both name and nature and that’s not right.

“And this, I would argue, has come at some considerable societal cost. One cost is the forgone opportunities to harness more of the potential of the sector – what economists would call an opportunity cost. If their true social benefits were properly understood and appreciated – including by volunteers and charities themselves, as well as by businesses and policymakers – an even greater societal contribution could be made by them.

“Another cost, a more immediate one, is that our economies and societies are currently quite unbalanced, with inequalities of many types including financial, spatial and generational.  These inequities are, I believe, a root cause of many adverse societal side-effects, including populism, nationalism and political division. And while there is no single cause of these problems, one of the most important is, for me, that civil society – what Raghu Rajan in his recent book calls the ‘third pillar’ – has been allowed to erode and subside over time. Community and social capital has been allowed to depreciate. Strengthening that third pillar and rebalancing society I believe requires civil society to be stronger, and more of its potential to be unlocked.”

Read the speech in full

Read the report in full