The world is facing its worst recession since the 1930s; the only real question is how deep and how long. Opinions on this seem to change every day with the current views differing as to when in 2010 we will see an upturn. The most extreme current view is that of the IMF who believe that the UK will face a much worse recession than the rest of the world with GDP falling by 3.8% in 2009 and 1% in 2010. The Ernst and Young ITEM group estimate that GDP will fall by 2.7% in 2009 and 0.5% in 2010.

Unlike more recent recessions that have been fuelled by inflation, this recession is debt led with credit drying up. There has been a collapse in stock markets around the world of around 45% with dividend income falling and investment returns also reducing. House prices have fallen 17% in the last 12 months, retail sales continue to fall and unemployment has risen to 2.03 million with forecasts of it increasing to 3.2 to 3.5 million, 11% of the workforce. Not surprisingly consumer confidence has fallen with reductions in consumer spending estimated at 2.6% and savings are up. An Ernst and Young survey indicated that households have 15% less free income than 5 years ago.

It needs to be remembered that whilst most people see an upturn beginning during 2010 it will take a number more years until the UK economy returns to where it started. So what does this mean for the Charity sector? During 2008 a number of commentators looked at what happened to charity income in the recessions of the 1980s and 1990s and concluded that income flattened and then continued upwards at the end of the recession. However we just don’t know what will happen this time. The sector is much larger now. Since 1999/2000 the sector’s income has grown from £24 billion to £47 billion, so if we assume a straight line growth since the early 1990s income would have been £12 to 15 billion in the last recession. Also now 51% of the sector’s income is from contracts and trading and 35% comes from the public sector. These areas were much smaller proportions of the sector’s income in the early 1990s. So the sector has changed significantly sine the last recession and is probably more open to the economic climate than it was.

A survey by CFDG, the Institute of Fundraising and PricewaterhouseCoopers in November 2008 indicated that apart from investment, legacy and corporate income charity income was expected to hold up; however, anecdotal information seems to be indicating that this is no longer the case. It will be interesting to see the results when this survey is repeated in May 2009. In a survey by the Charity Commission published in February 2009 35% of charities said that they had greater demand than they were able to supply services for; a further Charity Commission survey published in March 2009 indicated that 64% of charities with income greater than £1 million were concerned about services or funding.

That survey indicated that 32% of charities had taken steps to limit the impact, for example, reducing costs, increasing fundraising efforts, drawing on reserves, holding or cutting new services and reducing staff. Charity reserves are also under pressure. The results of a survey published by CAF in February 2009 showed that already 60% of charities with income falls are using their reserves to manage this deficit. All areas of charity income are under threat. The government’s policy for dealing with the recession is to increase the money available for bank lending in the first instance and then balance the budget through reduced public expenditure and increased taxation by 2016.

The 2011 to 14 Financial Spending review is going to be hard and deep. Those charities that receive funding from the public sector will find some or all of their funding under threat; for example 50% of charities with income of between £100k and £1m have more than 50% of their income from statutory bodies. Currently, charity investment income is falling; legacies are falling and corporate donations are falling.

What will happen to fundraising income? It is too early to tell, but the current increases in rates of attrition are worrying. The sector is very diverse and consequently the recession will impact each charity differently. The key is not to look at surviving the recession but to look at maximising the benefit to your beneficiaries with the resources that you have.

Keith Hickey is CFDG chief executive.

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