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UK charities face a growing dilemma between meeting immediate financial pressures and protecting the resources they need for the future, according to the third annual State of the Charity Sector report from Rathbones.
The report brings together Rathbones' latest research* into the finances, investments, workforce and future income of UK charities, revealing a sector under sustained pressure but with potential routes to greater resilience.
Three quarters (75%) of charity leaders surveyed say their organisation's total income has fallen over the past year, while 81% are drawing on reserves to maintain services. Almost all (99%) say current funding does not match operating costs.
But Rathbones warns that some choices to address immediate pressures could limit future capacity and income. Two in five (40%) are considering stopping stock market investment, despite 84% seeing their portfolios grow over the past year.
David Cox, Director of Charities at Rathbones, said: “Charities are understandably focused on meeting immediate needs at a time when finances remain under considerable pressure. But the decisions being made today can also shape an organisation's ability to deliver its mission in the years ahead.
“Our research highlights the difficult balancing act facing charity leaders and trustees. Reserves, investments, people and future income cannot be looked at in isolation, and short-term decisions should not inadvertently limit an organisation's options for the future.”
Investment remains an important part of the picture
Almost all charities say their investment portfolios are producing sufficient income, even as they weigh immediate liquidity needs against longer-term objectives.
Many are also reassessing how their portfolios are positioned. Seven in 10 (71%) expect allocations to active strategies to increase over the next three years, while 63% expect their overall risk appetite to rise over the next two years.
Responsible investment remains firmly embedded, with nearly nine in 10 (86%) saying strong credentials matter when investing, despite 76% reporting pressure to relax policies in pursuit of higher returns.
Reasons for optimism despite the pressure
Public giving has held up despite continued pressure on household finances. Almost three in 10 UK adults (29%) increased their charitable donations over the past year, while a further 42% maintained them.
Gifts in wills could become increasingly important. Nearly three quarters (74%) of charity leaders expect legacy giving to grow in importance over the next five years, while Rathbones' consumer research found that 30% of adults have already left money to charity in their will.
However, two thirds (67%) of charity executives say probate delays are affecting their organisation, underlining the need to plan around when funds will actually become available.
Building resilience
Rathbones says resilience will depend on tackling these challenges together. The report identifies four priorities:
- Protect liquidity, through refreshed cashflow forecasting and stress-testing weaker income, higher demand and delayed legacy receipts.
- Keep longer-term capital working, reviewing reserves and investment policies together and considering liquidity, risk and responsible investment objectives.
- Strengthen governance, including oversight of workforce, succession, cyber, regulatory and investment risks.
- Diversify future income, taking a coordinated approach across public giving, fundraising, retail, legacies and investments.
David Cox added: “There is no single answer to the challenges facing the sector, but charities that take a joined-up view of liquidity, investment, governance and future income will be better placed to navigate uncertainty while continuing to deliver for the people and communities they serve.”
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