By Max Williams, Research and Policy Analyst

It’s said that a problem shared is a problem halved. But new figures from the Bank of England’s Decision Maker Panel survey suggest the problems the charity and private sectors currently share are in no way diminishing.  

This subset of the Bank’s quarterly survey has been made available to PBE for the first time, and splits out charities (defined as all not-for-profit organisations) from private businesses. Out of around 2700 responses each quarter, approximately 200 charities participate – giving a small sample which we can draw some indications from about the health of the sector. 

Uncertainty is down but not out 

Having been buffeted from one crisis to the next, two fifths (41%) of charities surveyed now report facing high or very high levels of overall uncertainty, while more than half (54%) of businesses report the same. This has halved since the height of the first Covid lockdown in Q2 2020 – when 79% of charities reported high or very high levels of uncertainty – but is nevertheless substantial.  

Uncertainty for businesses has also started to creep up again. While high levels of uncertainty for charities are down 19.5 percentage points since Q2 last year, high levels of uncertainty are up 3.8 percentage points for business. And at the extremes, charities are almost half as likely as businesses to report very high uncertainty (9% of charities compared to 16% of businesses), and almost five time more likely to report very low uncertainty (2.3% against 0.5%). 

We can only speculate on the causes of this, but the charity sector’s position in the supply chain is likely to play a role. As charities are, in general, consumers rather than producers of goods, rising prices take longer to impact their outgoings than, for example, energy intensive businesses like steelworks affected by energy costs or farmers affected by fertiliser shortages. The charity sector’s innate optimism, a known phenomenon for the sector, may also be contributing – as research shows that charities are generally optimistic about income growth despite broader economic uncertainty.

The battle for workers continues

Data from DCMS suggests that employment levels in the wider economy and civil society sector have broadly matched each other throughout the pandemic. The department’s latest statistics show that the number of filled jobs in the civil society sector fell 0.5% in 2021 while the number of filled jobs in the economy as a whole dropped 0.6%. This Bank of England dataset shows something similar: that business and charity employment growth rates closely mirrored each other throughout the crisis.

After the pandemic’s initial shock to jobs, employment rates for both businesses and charities have steadily recovered – increasing since Q2 2021. This growth has been very slightly slower for charities, which experienced half the employment growth that private businesses did in Q4 2021, and 40% less in Q1 2022.

Both businesses and charities are expecting to continue recruiting at similar rates to each other going forwards. Expected employment growth rates over the next year converge at 3.2% in Q2 2022 for both sectors.

But this employment growth has not been without complexity. Vacancies are at record levels, and the overwhelming majority of both businesses and charities are now struggling with recruitment. About 85% of respondents from both sectors are finding it harder than normal to recruit new employees. Only 2% are finding it easier.

Differences in pay are opening up

Increasing pay is one of the methods by which organisations can gain a competitive edge in this battle for talent. It can also be used to respond to the growing cost of living crisis faced by their employees.

However, the rate of earnings growth is not keeping up with inflation – and this data suggests this is particularly true in the charity sector. In May 2022, year-on-year realised wage growth was up 5.6% for businesses, but up 3.8% for charities.

It is likely that the difference in motivation between typical employees in businesses and employees in non-profits allows for this. Non-profit employees are more highly motivated by a sense of satisfaction in their work and a sense of purpose, while private sector employees are more highly motivated by pay and praise. This may allow greater scope for non-profit organisations to ‘share the burden’ of rising costs with their employees.

But with the combination of low pay likely to exclude employees of under-represented groups from the charity sector and high levels of concern over workforce burnout, charities may not be able to sustain this growing wage gap with the private sector for long.

As a rule, charities have a history of somewhat exceeding their own expectations on employment growth according to this survey. The data suggests that charities have hired at a very slightly higher rate than they expected coming out of the pandemic – outstripping their expectations each quarter by an average of 2.5 percentage points since Q2 2021. In Q4 2021, for example, charities had an employment growth rate 5 percentage points higher than the rate they projected the previous year, realising a 1.3% growth, compared to the expected decline of -4%.

But current charity sector expectation on employment growth is at the highest level it has been in 4 years. While the labour market is tight and the private sector is also on the hunt for more employees, the growing pay gap between the sectors might hold the charity sector back from filling the vacancies it intends to create.

Conclusion

These results point to an economy under considerable pressure. For charities, the survey paints a picture of a sector in which wages have risen by 3.8% and yet 80% say recruitment is more difficult than usual. And it is possible that charities are simply a little further behind the private sector in feeling the effects of a global price crisis.

Given what we can expect to happen to charity demand over the coming months, the already-strained position of many charities and the staff who work in them coming out of the pandemic, and the sizeable real-terms pay cuts facing so many who work in the sector, it’s clear that sector remains in a very precarious position.

Meanwhile, the similarities between the private and charity sectors’ outlooks throughout the pandemic suggest that it’s important that support considered for the private sector considers the needs of charities too if the problems they share are ever to be halved.

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