New report: Third Sector Trends in England and Wales 2022: finances, assets and organisational wellbeing

Third Sector Trends has been surveying the voluntary, community and social enterprise sector every three years since 2010. In 2022, 6,071 responses were received across England and Wales (an average of ~600 responses in each region).

This is the only fully representative longitudinal survey which can produce robust and detailed comparative analysis at a regional and national level.

This is the third of five reports from Third Sector Trends England and Wales 2022.

Relationships with grant making trusts and foundations

Relationships with grant funders have changed since 2019. The research shows that many grant makers relaxed their approach to funding during the Covid-19 pandemic (percentages refer to TSOs which ‘agree’ or ‘strongly’ agree with statements).

There is good evidence to show that funders have taken a ‘lighter touch’ to grant making approach during the pandemic.

Some aspects of inter-relationships with grant-making trusts and foundations did not change:

As the report concludes:

“The benefits of these changes are plain to see. 83 per cent of organisations have reserves now compared with 76% in 2019. In 2022, 45 per cent of organisations have not drawn on reserves compared with 36% in 2019… The question is, will those grant makers which became more relaxed about how they dispensed their money remain so?

Some grant funders have always operated in a responsive way to the needs of charities and social enterprises and trust them to get things done. Others may be keener again to shape and direct the way their money has an impact on local communities and seek evidence for the changes that were achieved.”

Public service delivery contracts

Political enthusiasm for engaging the Third Sector in the delivery of contracts was at its strongest in the first decade of this century. This policy drive derived from an assumption that TSOs could be incentivised to undertake work for government at local and national level in a ‘mixed economy of welfare’.

Despite government efforts to incentivise and help prepare TSOs to engage in the delivery of contracts, such opportunities still only attract small section of organisations in the Third Sector.

As the report concludes:

“Organisations that deliver contracts are the most likely to be struggling to retain staff and recruit others. If wages are poor, because contract values are too low, then staff will not be available to deliver them.  And to compound this problem, those TSOs which previously chose to subsidise contracts using trading income may struggle now to do this in challenging economic circumstances.”

Earned income from self-generated trading

Self-generated trading includes the delivery of services that clients pay for (such as childcare or community cafes), ticketing for events, rent of space or production and sale of goods.

As the report concludes:

“The Third Sector’s own trading activity has been affected by the pandemic.  Many organisations stopped or reduced trading activity during the worst of the lockdowns. Like private businesses, they were not allowed to open for long periods. And, initially at least, when they reopened fewer customers came.

While Covid-19 may have accelerated change, the pandemic’s effect should not be over-stated nor its impact exaggerated. The proportion of organisations earning income has not increased over the years. In fact it has fallen very slightly and fewer organisations rely very heavily on trading now than in the past. More recently established organisations are less interest in trading than their older counterparts.”

Optimism about future finances

In spite of current difficulties with rising costs of energy and wages, optimism about finances has remained remarkably high.

But as all previous rounds of Third Sector Trends surveys have shown, organisations of all sizes tend to be somewhat ‘over optimistic’ in their projections about future finances.

As Rob Williamson, Chief Executive of the Community Foundation Tyne & Wear and Northumberland, said

“This report shows that the push since 2010 for the future income of the third sector to be based on trading, contracting, social finance and digital fundraising have amounted to very little. We still see the continued  importance of grant funding, indeed the model of social finance has evolved into a blended model relying on a mix of grant funding and social finance…

“The pandemic sped up the modernisation of grant funding through trust-based, less restrictive models increasingly focussed on core funding which is a good thing. As funders we need to continue to work and flex alongside the sector to ensure the best outcomes for our communities.”

As the report author, Professor Tony Chapman, concludes:

“Sector over-optimism is not a bad thing because it drives enthusiasm and commitment. But when hopes are dashed, it can make people in the sector feel disappointed…

“Economic conditions are precarious. But this is neither a ‘perfect storm’ nor an ‘existential crisis’. The Third sector is more robust than many commentators think. But there will be a mix of winners and losers as social market conditions change…

“When thinking about sustainability, it should be remembered that Third Sector organisations tend to be financially prudent.  More organisations hold reserves in 2019 and that they are ‘holding on tight’ to them rather than investing in new things. And unlike private businesses, very few organisations borrow money which reduces the risk of foreclosure…

“Crucially, organisations have learned over the years how to flex their operations to manage upturns and downturns in their finances because they are so accustomed to high levels of turbulence in their finances. Inevitably, some organisations will have to make redundancies and reduce the level of services they offer…

“So government, local public sector organisations, grant making trusts and foundations and Third Sector infrastructure agencies need to keep a close eye, as they generally do, on which kinds of organisations may be most at risk. Otherwise, calls for blanket support for all organisations may water down or misdirect the value of such investment from where need is the greatest.”

Read the full report here