A dramatic drop in income is the key driver for the rising concerns

Senior charity executives are increasingly concerned about the financial health of the sector as organisations cope with dramatic falls in income while demand for services grows.

Wealth managers Rathbones conducted a study with leaders at UK charities and found nearly two out of three (61%) say the finances of their organisation have deteriorated since the cost of living crisis started, with 13% saying it has deteriorated dramatically.

Around one in four (24%) rate the financial health of their organisation as average.

A dramatic drop in income is the key driver for the rising concerns, the study found.

Almost eight in 10 (77%) senior executives questioned say annual income has fallen during the cost of living crisis with 67% saying it has fallen by a fifth or more.

Rathbones’ research mirrors the results of the Scottish Third Sector Tracker, a project run by the Scottish Council for Voluntary Organisations, which monitors the state of the sector.

Its most recent findings, published in August, showed that the number of Scottish charities forced to make job cuts has doubled – and many organisations are eating unsustainably into their reserves just to survive.

Increasing numbers of organisations in Scotland are struggling to meet the demand for their services, while six in ten organisations feel the use of their reserves to be unsustainable, up from four in ten just six months earlier, and the number of organisations making redundancies has doubled, from 5% to 10% in the same period.

The Rathbones research found demand for charity services is continuing to rise – around 83% questioned say they are being asked to do more while around 17% say demand for services has stayed the same during the cost of living crisis.

This mismatch between income and demand is forcing drastic action – around 51% say they have sold assets such as property to generate extra income while half (49%) have cut back on services and 29% have reduced head count across their organisation.

More action is expected in the next 12 months with 48% saying they are considering the sale of properties while 39% are considering headcount reductions and 36% cuts to services. Around two-thirds (66%) say they will stop investing in the stock market.

Rathbones’ study found charity executives may not have to make the decision to cut jobs – all of those surveyed say there has already been an exodus of staff from the sector because of financial pressures. More than one in five (22%) say there has already been a dramatic increase in the numbers leaving the sector.

Executives questioned expect that to continue over the next two years – 64% forecast an increase in voluntary staff departures with 34% predicting a dramatic increase. That also applies to the executives themselves with 78% considering quitting because of the strain they are under due to financial pressures on the sector – rising from 36% who said this last year.

Andy Pitt, head of charities at Rathbones, said: “The charity sector has been under immense pressure over the last few years with the cost of living crisis hitting organisations hard, leading to a drop in income at a time when the demand for charity services has never been greater.

“This financial pressure is turning the spotlight on financial strength and it is clear that many charities will need to make tough decisions in the future. However, the sector has always been resilient and will adapt as it always has done. Those charities with investment reserves are able to evolve their strategies to ensure they can continue to meet their mission and our priority is working with our charities to deliver long term sustainable returns during this time of uncertainty.”