As charities fight the Government’s proposed cap on tax reliefs, research released today paints a worrying picture of the state of the sector, showing that charities are already battling to cope with a ‘perfect storm’ of increased demand and reduced funding and support.

93% of fundraisers say raising money has been harder in the past year – and this is before the announced tax relief cap.

The fifth Managing in a Downturn report Managing in the new normal - a perfect storm?, produced by PwC, Charity Finance Group and the Institute of Fundraising, reveals that charities have experienced a net reduction across all income streams and that the majority have been hit by Government spending cuts.

One fifth of charities are now considering merger as a means of survival, almost double the previous year’s figure.

Caron Bradshaw, CEO, of Charity Finance Group, said: “If further evidence were needed, that the Government are 'foot shooting' with policies which undermine the long term future of many charities, this is it.

"In the light of these results the relief cap is a frightening prospect, which will bring minimal benefit to the exchequer but blow a further hole in the sectors’ finances. Tentative promises of consultation are not enough. The damage has already started and George Osborne must rethink."

Peter Lewis, CEO of the Institute of Fundraising, added: “The cap is yet another blow to fundraisers, who are already struggling to maintain much-needed income.

"A massive 93% of fundraisers responding to our survey say the fundraising climate has got tougher in the past year, and 94% expect it to get even tougher in the next 12 months.

“Fundraising was seen as a key way to fight out of economic difficulties by the majority of our respondents – 66% told us they plan to increase their current fundraising activity in the next year, whilst 65% plan to expand into new areas. It looks like competition for donors’ cash is going to get even tougher, and the relief cap will simply tighten another major source of funds.”

Despite continued economic uncertainty and reduced income, the survey results indicate that the charity sector is resilient and flexible, as charities adopt innovative actions to adapt to this ‘new normal’.

The majority of charities remain focused on fundraising as their key action to help ensure organisational survival, however many charities are also looking to draw on reserves or are exploring how to invest funds more effectively.

“What absolutely emerged from the responses was that the sector was in the middle of a major-reshaping”, commented PwC director Ian Oakley Smith.

“The energy and capabilities of charities are being pushed to the limit as they look to survive in what we label ‘the new normal’ – prevailing uncertainty over the economy, future of funding and over the future of charities themselves. And of course now it would be fair to say uncertainty around what hand Government might deal next.”

The report, compiled from the feedback from 488 respondents from across a wide range of charities, revealed:

The majority of charities (63%) reported they had been negatively affected by Government spending policies.

Despite big society rhetoric and Government policies designed to boost the sector, half of respondents felt these had no effect on their charity – of those who did report an impact, 82% said it was a negative one.

69% of service delivery charities experienced an increase in demand in the past year, with 70% also predicting an increase in demand in the next 12 months.

The majority of charities plan to focus on fundraising activity in the next 12 months with 66% planning to increase current activity and 65% planning to expand into new areas.

One in five (20%) of charities also reported that they were considering a merger to try and tackle economic difficulties – up from 12% in the previous survey.

A significant 73% of charities were open to using reserves in the coming year; 45% had definite plans and 28% were considering.

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