The Local Government Information Unit has published an interesting report around the recent inquiry from the Digital, Culture, Media and Sport (DCMS) committee of the House of Commons, and the Government’s response to it. The full report is available only to members of the LGIU, which most of us are not, but the summary was included in an email, and re-published here:

Summary

Many charities provide vital services to the most disadvantaged in society. Charity workers have been among those responding on the front line during the Covid-19 pandemic, yet many charities are fighting for survival because of the pandemic.

The challenges currently facing the sector were the subject of an inquiry by the Digital, Culture, Media and Sport (DCMS) committee of the House of Commons. The inquiry found that charities face a perfect storm of a drop in income from all sources, higher costs and increased demand for services to support vulnerable people through the pandemic. In April 2020, the Chancellor of the Exchequer announced a £750 million programme of support for the UK’s voluntary, community and social enterprise sector (VCSE). This package is unprecedented but sector bodies argue that it falls short of the scale of the challenge and without further assistance, many charities will have to reduce their activities or close completely.

This briefing builds on previous LGIU briefings about the impact of Covid-19 on the voluntary and community sector and on small charities in particular (links unavailable to non-members). It summarises the findings in the DCMS committee’s report and the government’s response, and provides an update on developments since the crisis in the sector initially began to receive attention. It will be of interest to councillors and local government officers who have dealings with voluntary and community organisations.

DCMS committee inquiry

The committee held an urgent inquiry into the pandemic’s impact on charities. Charities and umbrella organisations gave evidence directly to MPs at an online hearing and the committee also received 70 written submissions. The evidence dates from the first few weeks of the lockdown period that began in March 2020.

There are currently over 168,000 charities registered with the Charity Commission (which covers England and Wales). The majority are small organisations with an annual income of less than £100,000. The UK charitable sector is very diverse with organisations of different sizes, funding models and services. Organisations range from household names like Macmillan nurses, the Samaritans and Oxfam to local animal sanctuaries, nature reserves and arts organisations. Therefore a one-size-fits-all approach to supporting the sector is unlikely to work.

Not all charities are experiencing the effects of Covid-19 in the same way and to the same degree, but the evidence given to the committee suggested that the impact on finances and operations were widespread. More than 70 per cent of the charities surveyed by the Directory for Social Change feared they could close before the end of 2020 without financial support.

The biggest challenge has been to charities’ income. Fundraising events have been cancelled. Trading activities such as retail shops had to close. Income from investments has reduced because of lower capital values, with many companies in which charities invest announcing a reduction in future dividend payments. Investment income has also been affected by the impact of the pandemic on financial markets. Volatility in investments is likely to hit grant-giving charities and foundations, which rely more on investment income, which could mean they have less money to dispense to other charities.

The committee praised the community spirit and fundraising efforts of individuals and businesses during the pandemic and says that it would be “perverse and highly regrettable” if small and local organisations were lost due to lack of support. It argued that individual fundraising and generosity are not enough.

The Secretary of State for Digital, Culture, Media and Sport told the committee he expected charities to draw on their reserves where possible. Some larger charities have been able to do this but warn that the scale of the crisis means reserves are being rapidly depleted and question the wisdom of spending down reserves when there is a risk of a second peak in the virus. The National Council for Voluntary Organisations (NCVO) says that up to a quarter of charities have no reserves.

The committee heard that many charities were struggling to access the government’s business support schemes. For instance, the job retention (furlough) scheme could only be used by charities whose paid staff could be stood down, but many charities needed to continue or even expand their operations during the pandemic. If organisations receive public money alongside other income, they may be ineligible for the scheme (a significant problem given the shift over recent years towards the commissioning of charities to provide public services). Furthermore, rules prevent furloughed employees from volunteering for their own employers, though they can volunteer for other organisations.

The coronavirus business interruption loan scheme (CBILS) was initially only available to businesses that generated 50 per cent of their income from trading. The scheme was later changed to exclude registered charities from the trading requirement of CBILS and the bounce back loan scheme. For many charities, however, taking on debt is not practicable when they do not generate surpluses from which loans could be repaid.

Key findings and recommendations

  • The government’s £750 million support package is welcome but is unlikely to be enough to cover the estimated shortfall, which runs into billions of pounds
  • There is a lack of transparency about the allocations process, particularly for the £360 million that is being distributed through government departments
  • The prioritisation of charities on the frontline of the Covid-19 crisis could mean that other organisations doing important work miss out. Losing their services would cause untold damage to individuals and communities and “cannot be allowed to happen”
  • A comprehensive stabilisation fund was recommended, alongside urgent changes to business support schemes so that charities can fully benefit from them

 

Government response to the committee’s recommendations

The government response said it has provided an unprecedented package of support for the sector. As well as the £750 million scheme, DCMS has released a further £150 million from dormant bank accounts which will be distributed through existing channels such as the Youth Futures Foundation and Big Society Capital. Subsequent to the committee’s report, the government published guidance on the criteria, allocations policies and application processes for the various strands of funding.

The government also insisted that many charities can benefit from support schemes for businesses, including loan schemes, deferring VAT payments, 100 per cent business rate relief and the furlough scheme. It estimates that 164,000 charity staff (out of approximately 870,000 jobs in the sector) had been furloughed by the end of May 2020. The scheme has been extended until October with increased flexibility to allow employers to bring workers back on a part-time basis, as support from the scheme tapers from August onwards. However, ministers declined to reconsider the rules on volunteering for one’s own employer while furloughed because the rules were designed as a safeguard against fraud and to protect employees.

The government committed to continue to “ongoing, regular and in-depth engagement” with the charitable sector on the resumption of normal activities such as trading and fundraising.

Comment

Several months after the alarm was first raised about the impact of the Covid-19 pandemic on the charitable sector, there is growing evidence of the impact on organisations. On the issues identified by the DCMS committee there have been both positive and negative developments in recent weeks.

There is now more clarity about how the £750 million emergency finance will be allocated and application processes are underway. The support comprises multiple schemes administered by different departments and funding bodies. New Philanthropy Capital has produced a helpful guide to the different elements. Charities are often frustrated at having to spend time and effort chasing pots of money so the myriad of schemes may present challenges, especially to smaller organisations. On the plus side, the government is delegating a large proportion of the funding to sector organisations to administer; this decentralised approach avoids the one-size-fits-all approach that the DCMS committee warned against.

Some funding is now getting through to organisations that need it but sector bodies have criticised delays in launching programmes. For instance, two months after the Big Night In fundraiser for Comic Relief and Children in Need, no emergency money had been received by organisations who fell outside existing grant programmes. However, there are some positive signs that funders are utilising equalities expertise and ‘lived experience’ in designing processes that are fair and reach diverse communities. The high profile of the Black Lives Matter campaign will also have served to highlight the issue of institutional racism.

The position of charities that are not directly involved in the response to the pandemic is particularly difficult as they may not qualify for – or be considered a priority for – much of the funding. However, the pandemic is having indirect as well as direct impacts on the sector. Some charities’ work that does not appear to have much to do with responding to the pandemic nevertheless will play an important role in post-Covid UK, such as supporting their beneficiaries through the recession.

The DCMS committee urged the government not to assume that its measures to support the VCSE sector mean that the problems posed by Covid-19 are solved. Many organisations may need longer-term support before they become sustainable again, including some of those charities that have followed the government’s advice to spend down reserves in the initial months of the pandemic response. There were no new measures to support the sector in the Chancellor’s economic statement in July 2020.

The VCSE sector is an important partner of local government. Most local authorities have well-developed strategic, operational and contractual relationships with the sector in their areas. Local councils should consider how they can support organisations in their areas through local Covid-19 responses, recovery planning and the commissioning of services. Local authorities will want to keep abreast of the outputs from the Kruger review, which may impact on local social infrastructure run by or funded by councils such as libraries and youth activities. Many local groups deliver vital services and fill important (often niche) gaps in state provision. It is important to ensure as many as possible survive as they will be needed in the future as the country recovers from the pandemic.