Daniel Ferrell-Schweppenstedde

Policy and Public Affairs Manager

Charities Aid Foundation

Key challenges and opportunities facing the charity sector

Just like many charities across the country, CAF is continuing to think through how the pandemic is reshaping the environment in which we operate and what a post-pandemic world might look like for the sector. (For instance, at the beginning of the year, CAF’s own Rhodri Davies did a podcast episode with a range of predictions for what 2021 might bring for philanthropy and civil society).

While events are still unfolding, we want to take a short look at the challenges and opportunities for charities as we are coming out of lockdown – and what a changed environment means for them. Civil society is vast and includes a myriad of organisations and groups which work in different contexts and face different challenges (now more than ever), but there are also common challenges and cross-cutting themes we can determine.

Continued impact of the crisis causing financial challenges

Covid-19 has put a gaping hole in the charity sector’s finances and brought financial challenges for many charities that may continue over the long term. For example, data from the latest PBE Charity Tracker survey shows that only 54% of respondents expect events fundraising to return to pre-pandemic levels before the end of 2021. At the onset of the crisis, estimates of the funding gap were put at £4bn, but could be as high as £10bn. This plays out very differently across the sector, with some charities being less impacted (or even being able to increase their income) while others had to scale back or even close down.

Policy change is another factor: the reduction of the aid commitment from 0.7% to 0.5% of GNI, for instance, translates into a reduction of the ODA budget by £4bn. This will mean funding cuts for UK-based aid charities that operate overseas (but could also have ripple effects for onward granting and contracting of local civil society organisations delivering services on the ground), with smaller development charities being severely impacted. CAF is therefore supporting the Small But Mighty Campaign, which is asking for more government support for small development charities.

For all charities, increasing financial resilience and closely monitoring income levels will be vital going forward. CAF also provides a range of products that can help with this: charity loans for organisations with a social purpose, growing your reserves with CAF’s charity deposit platform, charity investment funds and other financial services that provide banking with purpose.

Continued pressures on services and reduced capacity to deliver

During lockdown, many charities experienced an increase in demand for their services, whilst at the same time having to pivot and adapt the ways in which they work and fundraise. And this imbalance between demand and capacity to deliver may continue post-lockdown. Data from the Pro Bono Economics Charity Tracker survey showed that only one third (33%) of respondents are operating at pre-crisis levels of activity, rising to just 85% by the end of the 2021 – but demand had risen throughout 2020 and beyond.

In addition, survey data from CAF’s Charity Landscape report in December 2020 shows that the majority of charity leaders (85%) think that over the next five years charities will be expected to fill the gaps in public sector provision, and the vast majority (70%) of charity respondents to the latest PBE Charity Tracker survey said that they ‘expect the pandemic to continue to have a negative effect on their ability to deliver their objectives over the next 12 months’.

Ability to capitalise on volunteer mobilisation

Looking for example at formal volunteering, the UK experienced a mobilisation of volunteers for Covid-19 related volunteering, which happened to a large extent through independent local community groups. There was also an uptick in people saying that they wanted to continue to volunteer in the future compared to pre-pandemic levels. Thousands of mutual aid groups were also set up and offered informal volunteering opportunities. Even the great vaccination effort is widely supported by volunteers.

But there remains a question as to whether levels will be maintained once life returns to normal, and whether the charity sector and government can help sustain these efforts and connect with efforts that foster more local empowerment. The verdict is still out, but data from CAF’s World Giving Index shows that levels of volunteering are in slow decline over time – with the UK currently ranked 36th out of 114 countries in terms of participation in volunteering. The pandemic may have temporarily bucked this trend by focussing attention and giving a clear framing for why people should give their time, but with the crisis moving out of the public eye and people moving into ‘post-lockdown life’ we could see the longer-term decline in volunteering numbers continue.

Charities might have to ask themselves if they need to adjust their volunteering offerings to respond to what appears to be a growing ‘participation premium’, i.e. people wanting to feel that they are actively doing something to cause change (instead of ‘just’ giving money). In normal times, events and other activities that could be done collectively would be suitable options. But charities might find themselves in a situation where they are competing for people’s time with other activities such as sports, leisure and socialising that are now possible after months of lockdown.

Hybrid-worlds 1: new ways of working

Many charities made changes to working arrangements and service delivery through necessity during the pandemic. A greater spirit of collaboration across the sector also emerged: many charities and infrastructure bodies, for example, coordinated closely to develop the Never More Needed campaign. But how will short-term changes to ways of working affect the charity workplace longer term?

Organisations across many sectors are grappling with how to find the optimum balance between offline and online working, as we become more aware of the strengths and weaknesses of both. Hybrid models of remote and office working are already in place for many employers and could become the norm. But there are also other examples of some organisations abandoning offices completely, while others call all their staff back to the office. Within the charity sector, a shift towards remote and hybrid working could also lead to a geographic rebalancing of the charity sector workforce, predominately located in London and the South East currently.

Charities must think first and foremost about the needs of the communities they serve. Remote working and digital service delivery could increase their efficiency and ability to reach wider geographic areas; but the loss of in-person contact could come at a cost in different ways, and service users might still want to access services with a ‘human touch’. There are also vast differences in charities. Many provide services which cannot be delivered online, or their service users could face digital exclusion if they switch services over permanently. However, the impact of the pandemic means that digital ways of working are here to stay and most charities will need to consider different modes of working together and creating impact that includes in-person and digital.

Hybrid-worlds 2: a changed landscape of how people give

There are two main trends to observe when it comes to giving. The first is the expansion of the “landscape for doing good” – the range of options available for achieving a social purpose. Already evident pre-pandemic, this trend has been accentuated and accelerated. One element of this is the aforementioned rise of mutual aid groups. Similarly, informal peer-to-peer giving, via digital payment apps, could also become more important. There could also be a greater blending of giving and commercial transactions going forward. Could the advent of cause-related marketing and ethical shopping mean people are counting parts of their consumer spending towards their overall “social good total”? This might be the case when there is a real transaction involved (e.g. a percentage of a payment being directly donated) or when buying a product to support a particular group or further a cause.

The other major giving trend is the role of digital and how it impacts participation, service delivery and fundraising. For example, new digitally-enabled networks also seemed to gain further momentum during the pandemic. What could this mean for patterns of participation post-pandemic, and how should ‘traditionally organised fundraising charities’ position themselves in relation to these movements?

Then there is the wider trend of lots of interactions moving online (observed in particular with online shopping). And while many charities have been able to capitalise on this, there could also be a ‘digital deficit’ in parts of the sector. Towards the end of 2020 we asked charities whether the pandemic is accelerating a drive towards online fundraising. 53% agreed that there is a need to shift to an online fundraising approach. But when asked if they actually conduct any online fundraising at the moment, 62% replied that they did not. At the same time, continued restrictions on events and fewer opportunities to make spontaneous donations have impacted charities’ ability to raise funds; while cash is still the dominant way for people to donate money to good causes, further digitisation of giving might have also been accelerated by the pandemic. Again, charities will have to find the right balance between online and offline approaches in their fundraising and in how they engage supporters.

Changes to the overall landscape of mass giving

CAF’s UK Giving data showed that in the first half of 2020 the public donated £5.4 billion to charity – an increase of £800 million compared to the same period in 2019. It also showed that roughly the same number of people gave compared to the year before, but they did so slightly above levels we would have normally seen for the time of the year. And while there was a large increase in the proportion of donors giving to ‘hospitals and hospices’, other causes such as children or young people and medical research seemed to have lost out temporarily; with medical research missing out of an estimated £174m in the first half of 2020. The impact of these shifts is not yet clear, and it remains to be seen whether the shifts are temporary or will become more ingrained over time.

Our recent World Giving Index data shows that the UK is still amongst the top countries for donating money (ranked 6th out of 114). However, it has seen a significant decrease in the proportion of people donating. Two big factors will dominate the wider picture and shape giving trends as we emerge from the pandemic: the scale and nature of the economic impact and the response to it from individuals and government. Our connection with charities and causes increased during the pandemic. But as we emerge from it, there might be a need to reignite mass giving, while also being wary of giving fatigue and being mindful that many might be less able to give.

Some funders have recognised the need to support engagement with mass giving post-pandemic. MacKenzie Scott for example gave USD 7 million to Giving Tuesday - the global campaign for a day of giving - which CAF supports in the UK. PBE recently issued a report on lockdown savings and what it could mean for charities – another major opportunity for UK fundraising. It claims that lockdown constraints have led to £180 billion of excess savings (above the usual savings rate), a figure that could shortly reach £250 billion. Charities could be due a windfall of between £500 million and £1.2 billion as a result. But this would amount only to 0.2% to 0.5% of the potential pot of excess savings. PBE suggests introducing an incentive, such as a Recovery Gift Aid, with a temporary uplift of Gift Aid from 25p to 30p for every £1 donated. This ‘could increase income for charities by around an additional £600 million per year – potentially doubling the projected flow of lockdown savings to the charity sector through a combination of increased government contributions and additional public giving.’ CAF is part of a coalition of charities and infrastructure bodies that supports a similar ask for Gift Aid to be raised temporarily to unlock much needed funding for the sector.

Charities’ ability to make their voice heard

One of the core principles underpinning the UK’s civil society is the freedom for charities to advocate on behalf of the communities they serve, and to campaign for the change they deem necessary to achieve their charitable mission. But there have recently been worrying criticisms of charities that engage in political advocacy or comment on government policy and activities, and this risks damaging public trust in charities. It is vital, however, that charities are able to speak up as this can lead to important improvements in policy and action – and is part of the democratic process.

As lockdown ends, there is a question as to how much the charity sector and the issues it works on will be on the policy agenda and what role charities can play in the wider recovery. There may be a need for a flagship government programme that incorporates civil society in a meaningful way to harness local action and knowledge. The government’s ‘levelling up’ policy agenda aimed at addressing inequalities across different regions is one such possibility. For now the focus of the ‘levelling up’ agenda is on local infrastructure, but a recent NPC report highlighted that the public expect the agenda to tackle social issues too. NPC have thus called for government to support charities and community groups who could be helping to deliver the ‘levelling up’ agenda. Charities may have to push government on this point to ensure that civil society has a seat at the table.

Social change topics still being relevant

In the recent past the sector has grappled with big topics that speak to how their workforces and organisations are structured, as well as the behaviour of individual people. This includes bullying, harassment and sexual misconduct; racism and discrimination; diversity, equity and inclusion; tackling the gender pay gap; and much more. There is no indication that with the move out of lockdown these topics will disappear, and it is likely that the sector will be grappling with these issues for years to come. The pandemic has once again exacerbated issues here: an increasing wealth of research shows that it increased pre-existing inequalities, and at the same time policy has been focused on keeping the economy afloat and managing the public health crisis.

The momentum behind many of these big picture social justice topics is currently being carried by digitally-enabled movements. For many people these offer ways to participate that suit them and give them the ability to take direct action. Charities might face questions about what they are doing on issues of race and gender inequality from their supporters and potential future supporters, and there is a clear appetite among many to see charities take a lead on these issues and take actions that go well beyond surface level.

Adapting to the ‘new normal’

The above mentioned topics are just a few that the sector has to grapple with and more could be added to this list. But they will be of high relevance and on the minds of those helping the sector achieve its impact on making the UK a better place to live for everybody. The pandemic has brought about two major realisations – how dependent society is on the contribution of civil society and civic spirit, and the extent to which it has caused major shifts and long-term impacts for the charity sector. Charities will have to adapt to the new shape of civil society as well as the new ways overall society is being restructured, which will leave its imprint on how they will ‘go about their business’ as well. In this process, CAF can offer services and solutions to assist with adaptation and building up resilience for the future.