I was recently invited to give evidence to the Scottish Parliament’s Social Justice and Social Security Committee on Scotland’s third sector and the COVID-19 pandemic.

In the session (which took place on the 9^th December 2021) I set out our perspective on how the pandemic has made an impact on charities in Scotland, and in particular on income and funding.

In this blog, I set out the evidence I presented to the committee on behalf of OSCR. Representatives from sector bodies and a number of charities also gave evidence and anyone with an interest in how the third sector is doing will find the submissions and oral evidence of interest.

The diversity of charities

When thinking about resilience in the charitable sector it is important to recognise the huge variety of charities in Scotland (as described in our recent Sector Overview Report) and that the experiences of charities during the pandemic and their future resilience will vary widely depending on circumstance. For example, a significant majority of Scotland’s 25,000 charities have few or no staff and are entirely reliant on volunteers, while large charities with income of £500,000 or more make up 9% of those included on the Scottish Charity Register, but account for around 96% of the total gross annual income of all charities registered in Scotland. 

OSCR carried out two surveys in 2020 to understand how charities were being affected by the pandemic. Some of the quotes supplied by charities to the surveys appear throughout this blog in italics. We will be surveying charities and the Scottish public in February 2022 to seek views on public trust of the sector and help us understand the topical issues facing Scottish charities. We know that the better we understand the sector, the better we are able to help the sector improve so that the public have trust and confidence in charities.

OSCR’s Annual Report and Accounts also includes a number of recommendations to Scottish Ministers including our endorsement of the view that central government, local government and agencies should consider a more strategic and ‘joined up’ approach to the sector as we emerge from the pandemic.

Changes to income levels

We have undertaken a preliminary examination of the income levels from a sample of the charities that have submitted their Annual Return for the 2020-21 period.

The results are contained in this table:

It’s clear from this table that the pandemic has had a disproportionate impact on the income of the smallest charities in Scotland. The fall in the median income of charities with an income of less than £10,000 is significantly greater than the fall in the overall median income of charities.

The table also shows that the median income of larger charities has increased, possibly as a result of increased demands for services and the financial support provided by government. We expect that that this increase may prove to be temporary as some of those support schemes (such as the furlough scheme) come to an end.  

The biggest threat to charities at this time is a financial one so anything that can help offset the loss of income due to the impact of COVID-19

• Text in italics are direct quotes from respondents to our 2020 surveys

The evidence given at the Committee also underlined the diversity of experience across the sector in terms of the financial impact of lockdown and of support from public sector and other funders.

Adaptability in the sector

Charities have shown themselves to be adaptable during the pandemic. In this period, most charities who could no longer provide public benefit in their usual way adapted to provide benefit in a new way.

Working for a charity support body our observation from the 100s of charities we work with as well as our own response is that the charity sector responded very quickly and with agility in either delivering regular services in new ways or providing crisis response or both. Charities seemed to be able to say what can we do? and get on with it.

Charities must use all of their assets to advance the charitable purposes described in their governing document, and must seek consent from OSCR before changing their charitable purposes.

While some charities still provide the same kind of benefit in a new way (for example, providing art classes online, rather than in person) others have embarked on entirely new activities, such as a community centre closing and shifting to providing food parcels. In cases like these, charities should seek OSCR’s consent to change their charitable purposes. OSCR are happy to approve this in the vast majority of cases, and has prioritised work in this area where the change was as a result of a charity adapting to the pandemic.

Number of registered charities

The number of registered charities has been increasing slowly over the last three years from 24,563 in 2018-19 to a current figure of 25,420.

The pandemic doesn’t seem to have affected the slow uptick in the number of charities on the Register and while figures for new registrations are lower than might normally be expected, the number of bodies applying for charitable status and the number of new charities joining the register have been largely sustained through the pandemic despite the challenging times.

Charities are usually only removed from the Register once they have notified OSCR that they have wound up. The low number of removals may reflect charities ceasing to operate but failing to notify us that they no longer exist. A key task for us in the near future will be to ensure as many charities as possible are supported to fulfil their reporting requirements, so that we can maintain an accurate Scottish Charity Register. If you are the trustee of a charity that has ceased to operate, the winding up section of our website can provide you with more information on how to fulfill your duties in this area.

Funding and the future

A recurring theme in our survey responses, as for others looking at the sector, has been that restrictions imposed on how charities can spend grant funding they receive continues to cause challenges.

Respondents suggested three areas where funding could be improved:

• Multi-year funding settlements
• Funding for essential costs (or core costs)
• Trusting charities with unrestricted grants

While it is not for OSCR to instruct funders on what conditions to attach to their grants, it is worth stating that charities must use all of their assets to advance their charitable purpose. As long as the trustees are satisfying their statutory duty to act in the best interests of the charity, we do not consider any one form of charitable expenditure as inherently better or worse than any other. The pound spent on an electricity bill is just as charitable as a pound spent on delivering a food parcel.

Address the reluctance of funders to value, and therefore be willing to financially support, core costs such as management and admin salaries.

While the discussion around grant funding for essential costs predates the pandemic, the situation has become more acute as other sources of funding, like service charges or retail income, have been adversely affected during the pandemic. Charities that could previously meet their essential costs through trading income are now seeking grant funding to meet those continuing costs.

Well-run charities were also able to rely upon their financial reserves during the pandemic. These will need to be replenished over time if the resilience of the sector is to be maintained.

While charities receive their funding from a variety of sources, the public sector makes up significant slice of that pie. The Scottish Government has recently opened a consultation on its Resource Spending Review Framework which is the first multi-year spending review since 2011. If you are interested in contributing to the consultation, the details can be found here.

Conclusion

Many charities have managed to react to the pandemic by bringing benefits to their communities in new ways. However, the information we are seeing indicates that it is the smallest charities that have been impacted most adversely.

Funding is of critical importance to charities and stakeholders have noted that many charities are struggling to recruit and retain staff. It is critical that charities are able to raise funds to meet all of their costs and it is clear that sustainable, flexible funding underpins the future resilience of the sector.

We’ll leave the final word to one of the respondents to our surveys:

We have learned that financial support for staffing and other costs must be in place to support viability for when this challenging time ends. Rebuilding a whole childcare sector would cost much more, than sustaining it through the hard times.