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Despite comprising 95% of the sector and their recognised unique and vital contribution, small charities are increasingly struggling in a worsening funding environment. Our findings show that this is being made even worse by the fact that they are locked into a system that favours scale over impact, leaving them disproportionately vulnerable.
Nothing comes to mind. What you are offering is already incredible
This report brings together 6 months of literature reviews and surveys, as part of our work in designing Charity Excellence 2.0, to ensure it meets the wishes of front line charities. It also calls on sector bodies, grant makers and Government to maximise the impact the limited funding we have by removing the barriers causing this inequality.
The next stage will be to publish our current work on the support needed by small infrastructure organisations to help them survive and provide more support.
With thanks to GSR Foundation whose funding makes our work possible.
The UK charity sector has faced a sequence of overlapping crises that have progressively weakened resilience, particularly among small and medium‑sized charities. Charity Excellence fundraising analysis shows that each crisis has taken longer to recover from than the last. Critically, following the most recent, for the first time, fundraising resilience did not fully rebound, leaving many charities structurally weaker. (Source: Charity Excellence, Charity Fundraising Trends).
Charity Excellence is extremely useful, thank you for doing what you do.
Looking ahead, our sector analysis concludes that a meaningful fundraising recovery in the near term is unlikely. There is a high risk of a further sector crisis. In that scenario, charities would face a “triple blow” of weaker real‑terms income, rising demand, and higher operating costs. If that happens, full sector recovery may not occur before 2028. (Source: Charity Excellence, Gulf Crisis).
The conclusion is unavoidable: there is not enough funding, and there is not going to be. Without systemic change, many charities will be unable to continue to meet need. Our strategic analysis has identified AI as possibly the only major opportunity, if it is implemented safely and well. (Source: Charity Excellence Bid Candy Survey March 2026).
AI will impact Civil Society far more and far faster than the digital revolution, bringing with it very real risks but also the potential to create a fundamental shift in how we deliver mission-led impact.
AI in the charity sector is still largely in informal, early‑stage and ungoverned ways. Around six in ten charities feel they cannot afford to ignore AI, yet confidence remains low. (Source: Charity Excellence, Charity AI Survey). Infrastructure charities have told us that AI only solutions will exclude many of the charities they support. (Charity Excellence: Small Infrastructure Charities). There is a real risk that the larger charities, which can access funding far more easily will commission major AI systems, either only for their own use or which are only really effective for larger charities like themselves, which have the ability to fully use these. This would further exclude small charities and increase digital exclusion within the sector. There is also a risk of a more general widening gap: better‑resourced charities moving ahead with governed AI adoption while most (particularly small charities) remain stuck in low‑confidence experimentation.
What the sector needs is not large scale advanced technology, in the hands of a few, but highly accessible, useful technology in the hands of everyone, with humans in the loop.
The UK charity sector comprises around half a million non‑profits, including approximately 400,000 charities, supported by around one million staff and an estimated 13 million volunteers. (Source: Charity Excellence. How Many Registered Charities are there?) Around 95% are small, often volunteer‑run organisations.
Small charities play a distinctive and irreplaceable role. The Value of Small report demonstrated that they act as first responders and fill gaps, in statutory provision and really understand and are trusted by their communities. Their strength is that they are able to reach and engage those others cannot - not scale. (Source: Lloyds Bank Foundation, 2018). Partnering with larger charities offers the opportunity to scale but, whilst nearly two thirds had been approached, 55% rated the fairness of the funding as very poor.
Follow‑up research during Covid‑19 found that small charities “showed up and stuck around”, responding faster and remaining engaged longer than larger organisations, particularly for people experiencing homelessness, poor mental health, displacement and multiple disadvantage. Researchers explicitly concluded that this is capacity the system cannot afford to lose. (Source: Sheffield Hallam University / Lloyds Bank Foundation, 2021–22).
However, Charity Commission data shows a clear structural divide by size. Charities with income below £500,000 are far more likely to operate at a deficit, while larger charities are more likely to report surpluses. Smaller charities tend to operate on the narrowest financial margins, making them more exposed to inflationary pressures and financial instability. They are also less likely to receive government income than larger charities. (Source: Charity Commission, Annual Return 2024 analysis, published March 2026).
We are encountering increasing overhead costs and using up our reserves. We will close if this is not rectified!
Public service commissioning continues to disadvantage small and local charities, who are excluded by contract complexity and the scale commissioners want, despite their ability to deliver for their communities. (Source: Collaborate CIC/VODG - Reframing Commissioning: Provocations for Change, Nov 2024). Less than 3% of small charities surveyed felt the Charity Covenant would deliver real impact, with 74% expecting no or only limited impact. (Source: Charity Excellence Bid Candy Survey March 2026). And concerns have also been voiced about the Government's flagship Impact Economy policy effectively excluding small charities (Civil Society, 30 April 2026). Society, the sector and Government are all losing out in benefitting from small charities' unique capabilities because they are structurally excluded from the very initiatives supposed to help charities achieve more.
Despite delivering high social value relative to cost, small charities are locked into a system that favours scale over impact, leaving them disproportionately vulnerable.
Currently running in deficit supported by reserves. They will be exhausted in maximum 2 years. If not successful in accessing additional funds by then will be forced to close.
The 2026 House of Commons report into small charities made the following recommendations.
We responded to this by asking the smalls themselves to tell, us what they want. Their response supported the above but what also came through very clearly is that they want local not national support.
Animal charity completely funding by the public. Get next to no help at all with anything. All none paid vols, don't know where to turn for help needed and trustee support
Our April 2026 survey highlighted a significant gap between the support charities need and what they can realistically access. Nearly two thirds (64%) of respondents said that finding support is difficult or a struggle, while only 2% said they can easily find the help they need. But not because it isn't needed - 72% said that access to the right help would have a real or major impact on their organisation.
I rated national infrastructure support as I did, not because it's not important but because it currently doesn't seem to be there! By far the most valuable support we receive or see is thanks to the wonderful networks like SIDCN and the amazing Charity Excellence resources!
The findings also show that national infrastructure support is of more limited practical value to most charities compared with local and specialist provision. Less than 3% rated them 10/10 and 18%, 1/10. Qualitative responses consistently emphasise the importance of local infrastructure, peer and cause‑based networks, mentoring, trustee and governance support, fundraising help, templates, and access to tailored expert advice. Respondents noted that national infrastructure either does not feel accessible or does not meet their day‑to‑day needs, while local and specialist support is seen as more relevant, trusted and actionable.
This points to a clear structural need for a network that prioritises making local and specialist support visible and easy to access, rather than relying on national provision alone.
We’re fed up of endless online volunteer sites with no local bureau or ‘recruitment agency’ for matching and attracting volunteers.
In our surveys, there was also very strong agreement that infrastructure charities hold unique local or specialist knowledge that is not currently visible at a national level. This is being built into our design but we've taken 2 immediate steps in response:
Charity Excellence Reports and Surveys.
Literature Review.
A registered charity ourselves, the CEF works for any non profit, not just charities.
Plus, 60+ policies, 8 online health checks, the Quality Mark and the huge resource base. Our AI Ready programme and our 11 free online AI training courses.
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