Appendix: why a healthy economy matters for charities
At the beginning of 2010, 59% of charities surveyed by the Charity Commission reported that they were affected by the recession. During each quarter of 2011, the majority of voluntary sector leaders surveyed reported that the financial situation of their organisation had worsened over the previous 12 months.
Income from government
Lower economic growth or a recession will usually mean lower tax receipts and higher benefit spending. This eventually makes it more likely that charities’ income from government will level off or fall.
- Tax receipts were £456.2bn in 2007/8. By 2009/10, they had fallen to £419.9bn (in cash terms). There was some fiscal stimulus on the tax side via a temporary reduction in VAT, but not enough to account for a fall on this scale.
- Between 2000/1 and 2007/8, income from government rose from £10.1bn to £15.7bn. Since then, this income has more or less flatlined, with income at £15.3bn in 2015/16. 32% of charities’ income was from government in 2015/16.
Income from individuals
Reduced economic performance is likely to hit individual incomes in the form of higher unemployment and/or depressed wages and could affect donations. However, we saw no evidence of this happening during the financial crisis in the late 2000s or the period in which incomes were squeezed.
Income from investment foundations
A sudden economic shock could hit charities’ investment income, with potentially significant consequences for their activities.
Real-term investment income fell from £4.0bn in 2007/8 to £3.6bn in 2008/9 and £2.7bn in 2009/10. By 2015/16, it had still only recovered to £3.4bn. 79% of charities’ fixed assets were investments in 2015/16, while 7% of charity income came from investments.
Demands on charities
If the economy performs less well, this likely to result in higher levels of need due to the negative impact on wages, hours or employment.
Unemployment rose from 5.2% in Oct-Dec 2007 to 8.5% in Sep-Nov 2011 according to the ONS.
Average weekly earnings went up by 5.3% in 2007. In 2009, the figure was -1.2% and earnings growth remained under 2% (with the exception of 2011) until 2015.
If incomes are reduced via unemployment, public spending reductions due to reduced revenue or squeezed wages, that need can feed through to charities:
Action for Children looked at this as part of its Red Book in 2011-2013, finding that ‘for the first time since the 1940s, Action for Children is providing food, clothing and other items to families on a regular basis’