The pandemic drove funders to take a ‘lighter touch’ to grant making that has benefitted third sector organisations and should continue, finds the latest Third Sector Trends report.
Third Sector Trends has been surveying the voluntary, community and social enterprise sector every three years since 2010. In 2022, 6,071 responses were received across England and Wales, giving an average of around 600 responses in each region.
Third Sector Trends in England and Wales 2022: finances, assets and organisational wellbeing is the third of five reports.
Approach to funding
It shows that in 2019 46% of third sector organisations (TSOs) stated that they received unrestricted or ‘core funding’ rising to 60% in 2022. In addition, in 2019 a quarter of TSOs reported that grant funders had approached them with this rising to 40% in 2022.
Pressure to provide evidence of impact fell from 55% to 32%, while expectations that practice should be ‘innovative’ fell from 74% to 50%.
The percentage of organisations stating that grant makers made a long-term contribution to their work remained about the same between 2019 and 2022 at 31-32%.
The report states:
“The benefits of these changes are plain to see. 83 per cent of organisations have reserves now compared with 76% in 2019. In 2022, 45 per cent of organisations have not drawn on reserves compared with 36% in 2019… The question is, will those grant makers which became more relaxed about how they dispensed their money remain so?
“Some grant funders have always operated in a responsive way to the needs of charities and social enterprises and trust them to get things done. Others may be keener again to shape and direct the way their money has an impact on local communities and seek evidence for the changes that were achieved.”
Commenting, Rob Williamson, Chief Executive of the Community Foundation Tyne & Wear and Northumberland, said:
“This report shows that the push since 2010 for the future income of the Third Sector to be based on trading, contracting, social finance and digital fundraising have amounted to very little. We still see the continued importance of grant funding, indeed the model of social finance has evolved into a blended model relying on a mix of grant funding and social finance.
“The pandemic sped up the modernisation of grant funding through trust-based, less restrictive models increasingly focused on core funding which is a good thing. As funders we need to continue to work and flex alongside the sector to ensure the best outcomes for our communities.”
Public service delivery contracts
The report also looks at public service delivery contracts, and found that despite government efforts to incentivise and help prepare TSOs to engage in their delivery, these opportunities still only attract small section of organisations.
It found:Due to their purpose and scale of their activities, fewer than 5% of micro and small organisations have been interested in public service delivery contracts since 2013. Medium-sized organisations (income £250,000-£1million) have become progressively less likely to engage in bidding for or delivering contracts – falling from 52% in 2013 to 36% in 2022. Only the biggest TSOs (with income above £1million) have sustained involvement in such work (about 60% of bigger organisations in major urban areas and about 50% of bigger organisations nationally).
Here, the report says:
“Organisations that deliver contracts are the most likely to be struggling to retain staff and recruit others. If wages are poor, because contract values are too low, then staff will not be available to deliver them. And to compound this problem, those TSOs which previously chose to subsidise contracts using trading income may struggle now to do this in challenging economic circumstances.”
Looking at how the sector is faring in earning income through self-generated trading, the report found that around 60% of organisations in the sector earn some of their income in this way.
However, the proportion of TSOs that earn more than 80% of their income from trading has fallen since 2013 from 20% to 14%. The overall proportion of organisations that trade has fallen very slightly, but steadily, from 68% in 2013 to 66% in 2022.
In part, the report says, this is related to the impact of the pandemic, but that its effect should not be over-stated with the proportion of organisations earning income fallen very slightly over the years with fewer organisations relying very heavily on trading now than in the past. More recently, it notes, established organisations have shown less interest in trading than their older counterparts.
Expectations for future finances
Organisations were also asked about their expectations for their future finances. 33% thought their income will rise over the next two years while 46% think it will stay about the same. Around a fifth (21%) of TSOs think income will fall, with fewer than 5% feeling that it will fall substantially.
The report notes however, that previous editions of Third Sector Trends have shown TSOs to be over-optimistic about future finances.
Its data shows:In a period of government austerity in 2010, 24% of organisations thought their income would rise, but this only turned out to be 11% of organisations in 2013. In 2016, 36% of organisations thought their income would rise in future, but by 2019 only 18% reported that this had happened. In 2019, 32% of organisations expected their income would rise. During the pandemic in 2020, optimism collapsed to just 13%. But by 2022, 18% reported that income had risen – the highest level since Third Sector Trends surveys began in 2010. When surveyed in 2022, 33% of organisations thought that their income would rise over the next two years.
Report author, Professor Tony Chapman, concluded:
“Sector over-optimism is not a bad thing because it drives enthusiasm and commitment. But when hopes are dashed, it can make people in the sector feel disappointed.
“Economic conditions are precarious. But this is neither a ‘perfect storm’ nor an ‘existential crisis’. The Third Sector is more robust than many commentators think. But there will be a mix of winners and losers as social market conditions change.
“Crucially, organisations have learned over the years how to flex their operations to manage upturns and downturns in their finances because they are so accustomed to high levels of turbulence in their finances. Inevitably, some organisations will have to make redundancies and reduce the level of services they offer. So government, local public sector organisations, grant making trusts and foundations and Third Sector infrastructure agencies need to keep a close eye, as they generally do, on which kinds of organisations may be most at risk. Otherwise, calls for blanket support for all organisations may water down or misdirect the value of such investment from where need is the greatest.”