The dominant narrative around UK not-for-profit income in recent years has either been of reasonable stability in the face of economic shocks, or of fairly gentle and understandable decline as older technologies become less effective. The release of the latest CAF Giving Report prompted me to look again at this narrative.
Some basic economic analysis of the CAF figures seems to show a different story than the ‘flat income’ narrative . The UK Giving Report usually reports voluntary donations in cash terms, as in the graph below. However, despite there being comparator figures for economic growth, there is rather little comparative analysis of the figures. This matters because economies are dynamic things – the value of a currency changes from minute to minute, and the overall amount of economic activity fluctuates over time, too.
It also matters as it means that the cash figures in the report do not show donations as a proportion of overall economic activity. Despite aggregate GDP growth of 15.7% from 2005-2015, (calculated simply by summing the figures in orange in the graph). Donations are shown as broadly flat, when as a proportion of the total economy they are declining by at least as much as the economy is growing, some 1.5% a year. In 2005, British annual GDP was £1.676trn, with donations at £10.3bn, or 0.0061% of GDP. In 2015, British GDP had grown to £1.889trn, with donations having fallen to £9.6bn, 0.0051% of GDP, an alarming 17.3% drop in donations as a share of the economy in just a decade. Another omitted trend is inflation; voluntary giving in 2005 was £10.3bn – £14.1bn in 2015 money; had charitable giving kept pace with inflation over this time it would in real terms be approximately £4bn higher than it currently is. When I asked them about inflation, CAF said “we have reported on this in previous years and may do so again but looking at it without adjustment is also useful because it shows that the actual amounts people donate are fairly constant, regardless of inflation levels”. Fair enough, though one would think that this type of economic analysis would be included in most years especially as, taken together, inflation and growth mean the same amount of money buys progessively less impact over time. This is especially noteworthy as the rate at which it is happening seems not to be widely realised, running (as it does) counter to the popular (and more reassuring) narrative of stability or gentle, heroic decline.
And consider all this in light of the sectors overall dynamics. I was struck to learn recently that one major national health charity’s income nearly doubled in the 10 years before 2016, at a compounded rate of 7% a year. In light of the above, the point is that this growth has come within a static sector, meaning that while the size of the cake remains the same, the slices for some are growing quickly, at the expense of others. Each year of no growth also reinforces the harmful idea that the current rate of voluntary donations is somehow a natural maximum and that therefore we are in a kind of secular stagnation where the best to be hoped for are year after year of flat numbers. My response to this is the graph below, which I’ve used before and will probably use again, showing steep recent growth in British sales of ethical goods and services. Growth for socially-oriented organisations is not only possible, it is happening:
That’s the past and present – what of the future? The declining share of the total economy devoted to voluntary donations suggests that, if the present trend continues, UK not-for-profit’s will by 2025 be able to fund around 34% less good work each year than if donations had kept pace with inflation and GDP growth over the 20 previous years. If unchecked, this would lead to a potential ‘crisis of relevance’ for a sector. I also worry about the financial health of mid-sized not-for-profits, (those with income in the £5m-£20m bracket) who, faced with stricter regulation and larger competitors with more financial firepower, could be forced to shut their doors or seek to merge to survive.
Ideas matter. The story we tell of not-for-profits’ place in our economy and society relies to a great extent on how we measure organisational impact, which in turn relies to a significant extent on income – relative and absolute. The above should sharpen focus on the declining effectiveness of some fundraising approaches, a decline which could well be far sharper than sometimes thought.