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Charities lose faith and hope as funding crisis leaves them with £2.3bn black hole

Posted: Monday 1 December 08, 11.11am GMT

Source: Robert Booth and Patrick Butler, The Guardian, Monday 1st December 2008

Charities are facing a multi-billion pound black hole in their finances as companies withdraw sponsorship and individuals cancel standing orders as the economic downturn bites, according to an authoritative study published today.

A survey of 362 charities by PriceWaterhouseCoopers, the Institute of Fundraising and the Charity Finance Directors’ Group reveals that charity incomes are expected to fall in real terms and costs to rise. PwC estimates that the shortfall could reach £2.3bn next year as the UK heads towards recession.

The forecast is the clearest sign yet of the crisis facing the charitable sector as a result of the credit crunch and has been met with warnings that charity services – often aimed at helping victims of financial hardship – will be curtailed, and some may even collapse.

The squeeze has already seen the value of corporate donations tumble. The British Red Cross was forced to cancel its winter gala ball beside the Thames this month as it could not find a corporate sponsor for an event which usually raises £500,000. Shelter, the housing charity, lost £400,000 in the space of six weeks this autumn when corporate sponsors, including the nationalised mortgage lender Bradford & Bingley, cancelled donations.

Charity chief executives will now press ministers further to release a £500m emergency fund to help see them through the slump. “There is no doubt that over the coming year we will see charities fail,” said Stephen Bubb, director of the Association of Chief Executives of Voluntary Organisations. “We need help to help the victims of this recession.”

Demand for services which deal with homelessness and mental illness has grown at the same time as a fifth of charities report increased cancellations of direct debits by individual donors – often a bedrock of income. Of the charities surveyed, 71% said they expected corporate donations to fall or stay static over the next year, and a fifth of those feared they could lose at least 15% of corporate income. Some reported declines of up to 50% already.

After a decade of strong growth in revenues, the value of legacies and wills – which account for a third of the income of UK charities – has also plunged, and the charities’ investment income has collapsed in line with the equity markets. According to the survey, the only growth looks set to come from charity shops, as bargain hunters turn to second hand goods. Even that is threatened by a lack of goods to sell, as some would-be donors try to raise extra cash by selling their bric-a-brac online.

This afternoon a group of 27 charities which have lost £46m in investments in Icelandic banks will lobby a creditors meeting for the release of their frozen assets. Among them are Cats Protection and the children’s hospice Naomi House, which together invested £16.9m with Kaupthing Singer & Friedlander.

In all but a technicality the recession is upon us and the economic climate is looking bleak,

said Keith Hickey, chief executive of the Charity Finance Directors Group.

The one certainty is that our beneficiaries will need us more than ever. We must respond to this demand by ensuring that our charities are strongly led and able to ensure that we make the maximum possible use of resources.

The crunch has come at a difficult time for Shelter, which offers advice on mortgage problems, homelessness, keeping warm and coping with rent arrears. Banking donors, who account for a third of corporate donations across the sector, pulled the plug on sponsorship deals as a rise in repossessions precipitated a 20% increase in demand for services. It had already laid off 30 staff.

“If the situation worsens there will be an impact on our services,” said Adam Sampson, Shelter’s chief executive. “It is the speed with which it has happened which has made it very difficult to adjust. We have to plan for a significant proportion of our loyal donors not being able to afford their five pounds a month standing order payments.”

Donations from the rich and legacies have slumped, according to the survey. Of charities polled, 86% expected legacies to either decline further or remain static over the coming year.

“Giving from rich individuals, which had been flagged up as the next big thing, has gone down the pan,” Mark Astarita, director of fundraising at British Red Cross, said. “The bulk of the value of legacies is in property and shares, and their value has plummeted. We have predicted a 20% decline next year.” That would wipe more than £3m off the charity’s £100m annual income.

Overall, however, the British Red Cross, believes its income will grow modestly next year, largely from monthly direct debit donations gathered through face-to-face fundraising.

“It is going to be tough, but it is not all doom and gloom,” he said. “We are watching our individual donations closely and there is no detectable change.”

With more than two-thirds of charity bosses believing corporate donations will fall or stay static in the next year, charities which rely on this stream of income will be under pressure.

The Money Advice Trust, which provides free advice for individuals struggling with debts, relied on corporate donations for 65% of its £7.3m annual income in 2006-07. Five high street banks each gave it more than £500,000 in that year, including Royal Bank of Scotland, now nationalised.

The Prince’s Trust depends on the commercial largesse for around a fifth of its £22.5m fundraising income.

Breast Cancer Care depended on corporate donations for 52.6% of its income, Breakthrough Breast Cancer, for 16.6% and the Royal Opera House for 16.1%.

The crisis-hit UK financial sector accounts for around one third of UK charities’ income from corporate donors. Figures from financial information group Caritas Data show RBS gave £57m in cash and kind last year, Barclays £52.4m and HSBC £50.7m.

Posted by
Jennifer Todd

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