Charity Sector Outlook 2021 - A Strategy Toolkit To Respond To The Crisis

Some 50,000 charities may be at risk of closure in 2021. This toolkit gives you everything you need to plan your response to that. Charity COVID19 Toolkit 1 of 7 (Strategy) was last updated Mar 21.

Why This Matters

We can't change what's happening in the outside world, but we can respond to mitigate threats and exploit opportunities.  This toolkit does the spadework for you.    

  • Part 1 – What 2021 might hold for the charity sector. 
  • Part 2 – How to find the emerging opportunities.
  • Part 3 - A new way forward for the sector?
  • Part 4 – How to create your recovery strategy.

How effective are charities at strategy?  The Charity Sector Data Store strategy indicator is at amber, showing that the majority of charities report they are not doing this well.  Weaknesses include, not assessing funding needs effectively, a lack of realism in target and objective setting, not focussing on delivering impact and not engaging people in the strategy. To find out how to make your strategic planning more effective, complete the CEF Strategy questionnaire. It takes 2 mins to register here and 30 mins to do so; everything is free.   

What are the sector's key weaknesses?  Of the 21 top level indicators, 3 others are also at amber.  Sustainability will come as no surprise, but weak management of fundraising and ineffective planning might.  More positively, communications has moved from amber to green, over the course of the year.       

Covid Funding

  • How Much Covid Funding - it's not possible to make an accurate estimate, but something of the order of £5bn has been made available to the sector.
  • Who Got It - funding has mainly been focused on the front line, in areas such as the vulnerable and food banks. Funding for other charities, such as animals and the environment, has been limited, as has funding for UK international charities. 
  • How It Was Distributed - more positively, funders have been very flexible and quite a lot of the funding provided has been core, including funding to adapt services and meet funding shortfalls.  Funders have been more open to funding non-profits that are not registered charities. Whether that translates into a welcome permanent feature of future grant making remains to be seen.  

This Charity Excellence Insight Report used the system's data to provide a full breakdown of the above - how much, who it's going to, what the future might look like and lessons learned. 

PART 1 - What 2021 Might Hold In Store For Us?

The impact of the crisis was and will continue to be felt unequally across the sector.  Use this sector assessment to identify the issues of most importance to you. 

Government

Prior to the Mar 21 budget, the Chancellor had made significant cuts to departmental budgets, of which the huge cut to overseas aid was the most widely reported, but not only cut.   An example of what that might mean is youth services (Jan 21).  These have been chronically underfunded for years and a further round of major cuts to local government youth services is expected.  Almost two-thirds of youth organisations with incomes under £250,000 said they were at risk of closure.   

The March budget projections estimate that the economy will bounce back rapidly post lockdown and unemployment will be lower than expected, but the long-term damage from Covid will leave the economy 3% smaller in 5 years’ time. Moreover, the budget made no allowance for pandemic-related spending after next year and a further £4 bn in cuts were announced.  The Institute of Fiscal Studies is sceptical  that these cuts are deliverable.  

There is a significant risk to the sector that the Autumn Spending Review may see a return to austerity. 

Charity Sector

  • Reserves - a survey by Ecclesiastical (Nov 20) found that 12% of charities expected to run out of reserves in the next 3 months and almost half in the next year.  This is supported by a report on the reserves of English & Welsh charities during Covid (Nov 20), which found that many charities have less than 1 month of reserves, with some only a few days. 
  • Funding - inevitably, the recession will impact charity income streams and charitable funders may not be able to respond by increasing funding, as they did in 2008.  
  • Cost - Some 160,000 charity staff had been furloughed by the end of May.  That's a fifth of sector staff.  Charities will have to find more funding for staff costs, by the time it ends in Sep 21.  
  • Demand For Services - the factors above suggest the potential for a substantial and sustained increase in demand in 2021. 
    • An IFS report (Jan 21) found that Covid has exacerbated existing inequalities, with those on lower incomes, the young, the least-educated and the BAME Community hit the hardest. 
    • And the recession is more likely to impact the young, than older people and to be greater in the north, than in the south.  

What That Means - 50k charities are at risk of closure (see below).  

Why That Matters - it's not just a 'charity crisis', it matters to all of us.  Some 98% of people have used a charity's services and our work directly impacts on key Government priorities, and;  

Funding Us Makes Economic Sense As Well - with a passionate, but not well paid workforce of under 1m and nearly 20m (unpaid) volunteers, we represent extraordinarily good value for money; but.   

But, despite all the commitments, reports and initiatives, we have failed to tackle the very long standing abuse of people within the sector.  They got us through the initial 2020 crisis and it will be they who get us through the coming challenges. The abuse has and will continue to badly damage the sector's ability to deliver and we risk losing the confidence of those that we need the most.   

And externally, the Pro Bono Economics Civil Action Report (Nov 20) found that civil society is under-valued and overlooked, and 35% of the public think charities are wasteful and 31% that there are too many. 

The sector doesn't have a crisis, it has 2.  

Other Key Risks

New risks are emerging, but the existing risks have not gone away and, if anything, may even be more urgent.  

UK

Government Budgets.  With the focus on the economy/jobs, more funding for the sector seems unlikely and departmental budget cuts may well both reduce income and drive increased demand.     

Brexit   

  • Economic Risk - an LSE report (July 2020) found that Brexit will deliver a double shock to the economy.  
  • Funding Risk - the UK benefitted from a range of EU funds and it remains to be seen to what extent the funding gap will be met by new UK funds. 
    • Erasmus (£130m) has been replaced with the less well funded Turing Fund (£100m) and;
    • The £1.5bn EU Structural Funds (ESF) are to be replaced by the UK Shared Prosperity Fund, but possibly not until 2022.  Charities received about £500m pa of ESF funding.  
  • Lack Of Charity Preparation - that aside, the Charity Sector Data Store shows many are not ready for the changes; 2 of the 3 Brexit preparedness indicators remain at amber.  For some, there will be risks in areas, such as medicine and justice/security. 
    • For example, loss of access to the 24 European Reference Networks will negatively impact charities supporting the 4m UK people, with rare diseases.  

Longer Term.

  • Inflation.  Whilst not on the immediate horizon, a surge in inflation would make the huge public sector debt more expensive, potentially impacting the economy. 
  • Covid. ONS figures suggest that a million people left the country in 2020.  If that doesn't bounce back, there might be means less pressure on housing and public services and more job vacancies, but also fewer tech start-ups and creative industries – the most dynamic sectors of the UK economy.  Jonathan Portes, professor of economics and public policy at King’s College London. 

Global

2020 was the worst economic decline since the Great Depression of the 1930s.  The IMF has predicted global growth in 2021 will be driven primarily by countries such as India and China. Recovery in big, services-reliant, economies, such as the UK, is expected to be slow.    

  • Climate Change - is already having an economic impact and will also lead to increased conflict and humanitarian disasters.  
  • China - its increasingly belligerent stance adds to the risk of global instability.    
  • US/UK Trade Deal - we are likely to come under pressure to accept reduced animal welfare/food safety standards.  The US is also likely to target drug price setting and, accepting that, could drive a substantial increase in the cost of NHS drugs. There will be a significant power imbalance, in favour of the US, in these negotiations.   

How Big Might The Funding Gap Be?

  • Sector Estimates - in June, Pro Bono Economics estimated that the gap to Dec 20 would be £10bn, the IoF/CFG that there would be a £12.4bn shortfall in income and, in a DSC survey, over half of charities expected to be insolvent by year end.  That doesn't appear to have happened, but it may be that the scale of response from funders and the public wasn't fully appreciated at the time and these couldn't have taken into account the extension of furlough.    
  • Future Funding - substantial COVID funding was made available and some of that has been repurposed, so will not now be available for its originally intended use.  Finding more seems unlikely.
    • Almost all charity income streams fall in a recession, including theirs.
    • Government funding is focussed on the economy and jobs, not us, and major cuts to budgets have been made.           

Whatever numbers you choose to use, there is unquestionably a huge funding gap and, potentially, this may become even greater in 2021.  However, there is some good news.  The ACF Rising To The Challenge Report (Apr 21), found that 9 out of 10 foundations expect to maintain or increase grant funding for charities in 2021, despite many predicting financial turbulence. 

How Many Charities Might Close in 2021?

How Many Charities Are There?  Many people think there are about 160k UK charities, but there are 400k+.  

Last Recession.  The only 2008 charity closure figure I have is 12.3k, but that's probably substantively underestimated, due to the data used, the sector is now much weaker than in 2008, because of the years of austerity and this crisis is worse. We might perhaps expect 20k to 30k closures this time?  

2020 Data.

  • In Nov 20, some 14% of charities (NCVO/Sheffield Hallam) said that they no longer expected to be operating by the end of this year.  That would result in 58k closures, but in light of the 2008 data that feels a bit too high. 
  • A survey by OSCR (Scottish Charities Regulator) in Mar 21, found that 18% of Scottish charities had suspended all operations and 39% had suspended some.  Hopefully, for the vast majority of these that will only be temporary.

Looking Forward.  '50k at risk' seems reasonably prudent.

  • But, that has to be seen in the context of making some big assumptions and nobody knows what the rest of the year holds for us anyway.
  • In terms of the spread of outcomes, perhaps 20k to 60k closures, depending on what happens.

But, closures haven't increased?  Charity Commission de-registrations last year were lower than the year before and fewer than the number of new charities that registered.  Given the above, it seems very difficult to believe that a substantive increase in closures won't be inevitable. 

  • Might it be that a combination of a brilliant response by charities, using up reserves, the £ billions in Covid funding and furlough have enabled charities to keep going? 
  • In which case, are we yet to feel the impact?    

PART 2 - Finding Opportunities

No matter how well we mitigate the funding gap risk, we can't close it, and that's not the only issue, but a crisis is a catalyst for new ideas and better ways of doing things.  Finding and exploiting these gives us a way forward.  And whether an issue is a threat, or an opportunity, may well depend on what you do about it. 

Some opportunities are becoming apparent, but there will be others that we don't yet know about, and some of these could have huge impact in the longer term.  Which will matter will vary from charity to individual charity.  But they can't do it all themselves - there is a key role for sector bodies and funders in leading our response. 

How To Do That

We need to recognise, at both sector and individual charity level, that we would achieve far more by working in a genuinely collaborative way, to identify and share the emerging opportunities and new ideas, work to develop and roll out scalable models, and funders need to be willing to invest in making this happen. 

Let's admit it, collaboration is often superficial.  The all too frequent competition hinders the exploitation of new ideas, wastes scant resources and splinters our voice to Government.  We need to collaborate to repair the ship, not fight over who gets a seat in the lifeboats. 

That's about leadership and new thinking, to find a new way forward and give our people hope.  They need and deserve that. 

The Big (But Important) Unknowns

  • Societal Economics is all a bit theoretical, but may potentially be very important.  Will this change our market driven economics, by placing emphasis on what real value is?  Society has seen the men that make deals and money, as those we value, but.....  
    • Key Workers. Before the crisis, people like immigrant care workers were underpaid and seen as of little value by many.  When COVID arrived, the public began clapping key workers in the streets.  They kept us safe and the country running, whilst the hedge fund managers sat at home. 
      • Will this change become permanent and might that change the public's view of a sector, whose primary aim is to deliver social value, from too often being seen as 'nice do gooders' to being really valued and to be properly invested in? 
    • But. Our boards are actually less diverse than the commercial sector.  That matters, not just because of equality, but also because diverse boards are more effective (McKinsey May 2020). 
      • We're not only betraying our values - we're losing out too.
      • We talk endlessly about our commitment to diversity, but it's not what we say that matters, but what we do.  
    • Public Trust in charities has been falling for some years and key stakeholders, such as Government and the Charity Commission, respond to this. We must engage them. 
  • Society. COVID has seen a surge in domestic violence.  That's another tragedy, but might there also be upsides? 
    • Quality Of Life - Will lockdown and greater flexible working in future be better for families and the job market be a bit less harsh on carers (often women). 
    • Valuing Each Other - will the often rigid cultures and hierarchy in organisations (including charities) loosen up a bit in light of Zoom meetings in T shirts, that are interrupted by children/pets, and lead to us valuing each other, maybe just a little bit more? 
    • The Gender Gap - women bore the brunt of extra childcare during the initial lockdown and are being disproportionately impacted by the economic fallout.  However, social movements can be accelerated during crisis (WW2 moving women into work).  ONS data (May 20) shows a 58% increase in childcare undertaken by men.      
  • Government Policy. The Government’s economic recovery plan, changes to the Civil Service, debate over a possible break-up of the UK, and suggested devolution to regions will cause disruption and may (or may not) work, but will create new opportunities and threats for some.  

Emerging Opportunities

COVID19 is already creating huge changes, some of which will change the way we work in the future.

  • Some people more able to give.  Counterintuitive, as that might seem, 6m people have more disposable income, because of Covid; primarily older people.  What opportunities might that give you? 
  • Home Working – increased talent pool, reduced need for offices and lower rents.  Might that offer better recruitment and working practices, and a move away from the largely London centric sector leadership? 
  • Funding – changing priorities: Government, the public and charitable funders.  Will the greater focus on core funding, quicker bid turnaround times, simpler applications and less focus on registered charities, seen during Covid, become a long term change?  
  • Regular Giving - In response to the crisis, nearly two thirds of charities changed the way in which they communicate and half said they intended to continue to use these new channels in future.
  • Changes might include increased focus on supporters, strategic diversification, innovative approaches and greater investment in digital.
  • Digital – Opportunities include online delivery, greater reach, streamlined services and increased efficiency. 

Creating Something Good From Tragedy

Some good may come from awful events and factors may coincide, creating greater opportunity.

Both the impact of the virus on the BAME community and the Black Lives Matter campaign became matters of national debate. 

  • What could be done to build on this at national level, to tackle the long standing inequalities in the UK?
  • For the charity sector, how might we use this to finally deliver on diversity?  
  • For individual BAME groups, how might you use this at a local level?  Might those who have previously ignored you now listen?

Other areas with long standing issues that have now come more to the fore include mental health and social care.

Charity Sector

  • The Charity Commission - the sector needs a strong effective regulator, but one with some commonality of purpose with us and a relationship based on mutual respect and listening.       
  • Structural Changes.  Large charities are few in number, but already take the lion's share of the funding.  With their often strong balance sheets, executive expertise (or at least ability to buy it in) and very capable, large fundraising/digital teams, they may be more able to weather the crisis than smaller charities. 
    • Will we see Warren Buffet's 'deepening moats', if they emerge with even greater competitive advantage?  These are commercial concepts, but we're all competing for a too small amount of available funding.
      • The WPNC Donations Report (Apr 21) found a very large increase in online donations over the last 12 months, the bulk of which went to charities with income £5m+. 
    • Looking more widely and long term, what will the deepening moats of mega companies like Amazon, and the rise of AI and block chain mean for the world of work?    
  • Sector Leadership - we've been long lead by our, largely Metropolitan, sector bodies.  They have been hit as hard as everyone else, they compete with each other and total membership is probably only about 40k, in a sector of 400k. 
    • How might they put that aside and work collaboratively, to adapt and meet the previous and even greater new challenges we face? 
    • Will financial pressure compel them to adopt a less insular metropolitan focus, in order to reach the wider sector and grow their membership funding?
  • Or will there be new sector leaders, whose voices are listened to?  BAME groups have mobilised and are reaching key influencers in funding bodies and Government. 
    • If we won't give them a seat at the table, they may well build their own. 

Charity Sub Sectors

Others may be specific to certain charity sectors or even individual charities.

  • Environmental Charities – impetus for a Green Deal to restart economies, the election of Joe Biden, the Government's 10 point climate change plan and it's hosting of COP26 in Nov 21.
  • Health Charities – investment in vaccines, transferable advances in medical treatment and the COVID19 ‘Washing your hands’ campaigns that will impact much more widely than just the virus.

Unexpected opportunities - Ash found that a million people have given up smoking since the crisis began. 

The 1st Brexit opportunityEnvironmental Land Management (ELM), replacing EU farm subsidies, will pay farmers to prevent floods, plant trees and protect wildlife. 

PART 3 - A Way Forward For The Sector?

The crisis has been hugely damaging but, we could use that as a catalyst for change, to enable the sector to emerge from the crisis stronger, more effective and trusted. 

The Challenges

British Academy Report (March 2021), predicts a “Covid decade” of social and cultural upheaval and that failure to deliver change will result in a rapid slide towards poorer societal health and more extreme patterns of inequality.  It calls for renewed spending on community services, local government, social care and local charities, especially in deprived areas. 

But we have a 2nd crisis.  NCVO and CIOF are only the latest additions to a now long list of great organisations that have somehow got it wrong.  Blaming people simply creates scape goats, and more commitments and frameworks might raise expectations, but won’t realise them. 

I believe that both NCVO and CIOF will overcome their challenges, but also that this is a sector wide issue, which requires fundamental change.  I don't pretend to have the answers, but outlined below are my own ideas on what that might look like.  If there's anything of use to anyone, help yourself.   

A Vision For The Future?

Sector bodies collaborate and act collectively, to create a new vision and strategy for the whole sector.

Not a commitment to change, but a robust action plan that is demonstrably delivered to:

  • Make harassment and discrimination unacceptable and;
  • Foster collaboration and healthy competition, focussed on delivering the very best outcomes for our people and stakeholders, not individual organisations.  
  • Begin a change in culture by putting in place the structures, people and processes to create the accountability and transparency needed to do so. 
  • Engage Government by speaking with a single voice (we're 20m voters), and;
    • Change from asking for more money, to making the case for what it will achieve, based on a clear narrative about the value we add to society. 
  • Use the above to find a way to engage the Charity Commission, to help them become an more effective regulator that:
    • Listens and collaborates.
    • Provides the 'muscle' to deal effectively with those who abuse others and;
    • Focusses policy and guidance on promoting development of a strong and growing sector.

Funders build on their excellent collaborative work during Covid to:

  • Include diversity and protecting against abuse in their due diligence and grant agreements; money talks.
  • Adopt standard processes to avoid duplication, with the minimum of paperwork needed to achieve that.  

Sector bodies and expert charities work collaboratively to identify, share and celebrate good practice and innovation, not just their own.

  • And funders invest in this to scale it. 

PART 4 - How To Create Your Recovery Strategy

There isn’t enough funding and there isn’t going to be.  Boards that act strategically to the emerging threats and opportunities, will be far more able to mitigate risk, and find new ways of working to increase their impact and use resources more effectively.   

The Strategy Process

Strategy is about making the best decision you are able to, based on the best evidence you have.  It doesn’t have to be complicated, but you do need to have a logical, structured process, challenge positively, be prepared to think about new ways of doing things, take people with you and make decisions based on the available evidence. 

We cannot control the events in the outside world, so effective strategy isn’t about deciding what we want to do, but rather understanding how that may impact your work, and focussing our resources to exploit the opportunities and mitigate the threats facing us.  

External Threats & Opportunities 

These are the O and T in your SWOT. What the threats and opportunities may be for your organisation, depend on a range of factors specific to you and may appear at global, national, regional or even local level. 

You need to be looking outwards to identify, and then assess and respond to these. Think through what the issues above may mean for your charity.  

Internal Strengths And Weaknesses

These are the S and W in your SWOT.  If you’re a trustee, download the CEF Board Bingo game for your next meeting to find out what yours are.  

Strengths

We’re usually feel able to identify our strengths, but it’s always worth thinking through this.  

  • Known Strengths - We are really great at x, but might that be partly based on what we do that we personally value, rather than an actual strength? A case in point is that I know Scotland has the greatest football team on earth, despite the fact that (sadly) there isn’t a huge amount of evidence to support this.
  • Unknown Strengths – Sometimes other capabilities that aren’t really thought of as strengths, might now be very useful, in light of the changes COVID19 has created, or sometimes have just been overlooked.

Write down every strength you can think of, then test each in turn by asking yourself what measurable evidence do we have that demonstrates that to be the case?  Identify the key ones.    

Weaknesses

Even the very best amongst us have weaknesses, but many find identifying these the most difficult aspect of strategy.  But, these are usually the best opportunities we have to achieve more.   

Sector Weaknesses - The CEF Data Store aggregates all user data anonymously to create Big Data for the sector.  The metrics at amber are strategy, fundraising, communications, sustainability and how realistic we are in our planning and target setting.  That is the majority of charities do not do these well.  Are you one of them?

Challenges - We have fantastic people, but people are often resistant to change and talking about ‘weaknesses’ almost always makes people react defensively.  I find that approaching this as looking for opportunities to achieve even more helps.  

How Use Your SWOT Analysis

Bring your Strengths and Weaknesses together with you Opportunities and Threats to create your SWOT analysis. If you wish to, you could identify those that are particularly important or urgent. Then use this to create your strategy.   Watch this Charity Excellence ‘How To’ video (3 mins) for how to do your SWOT really well.

This image at the top is an example, which highlights those that are particularly important, or urgent.  The arrows show linkages that can be used to create a strategy; using strengths to exploit opportunities, and/or to address weakness, and/or to mitigate/avoid threats. Or better still, could you turn a threat into an opportunity? 

Implementation

However, strategy isn’t a plan, it’s what an organisation does and that involves everybody, ideally from the outset.  It’s important to engage people and turn your plan into the timetable, budgets and  actions needed for them to deliver it and your progress to be monitored.  

Whatever you do, don’t do nothing.

Here's How To Find A Huge Number Of Funders, Including Core

Get started on making 2021 a success for your charity by spending 30 mins completing the strategy questionnaire. 

There are 7 others and your will also be able to access the Funding Finder Database has 100+ core funders, 250+ other free funder databases and funder lists, and you can download 50 funding lists from the income questionnaire; everything is free. 

Register Now to join the 12k other members of the Charity Excellence Community. 

The questions are phrased brilliantly - challenging how we prioritise our management time." Ecosystems Knowledge Network

Register Now