Charities during the Coronavirus – is the Government’s help enough?
The Government’s £750 million Support Package for Charities. Is it Enough to Avoid Many Insolvencies?
In an earlier article our insolvency practitioners wrote that the UK could not afford to see many thousands of businesses going bust as a result of the Coronavirus pandemic, so the response of the Government with many positive measures will help. However, until now, charities have not been specifically helped. They are businesses too, and large and small, they do huge amounts of good and essential work throughout the UK and beyond – and the country cannot afford to see thousands of these go either. It was positive news to hear the Chancellor announce a £750 million package to help keep struggling charities afloat during the pandemic, following reports that almost 75% were fearing insolvency without significant levels of support. But is it enough?
In this article we look at the scale of the problem being faced by charities and give some more detail on the Chancellor’s support proposal. Given that the income shortfall of charities over the next 3 months is estimated at £4 billion, it seems that the Government’s support falls significantly short of what is needed and that many insolvencies are inevitable.
Many Charities Were Already Struggling Post the 2008/09 Recession
According to the Charity Commission, there were over 168,000 registered charities in the UK, as of September 2018, with an annual income of £77 billion. There are in the region of 950,000 Trustee roles and nearly 865,000 employees. Apart from the vital work they do, charities are, therefore, big business in the UK.
Many charities, especially the smaller ones, have been feeling the pinch post the 2008/2009 credit crunch related recession, with a rise in charity insolvency.
Angela Styles, the interim Chief Executive of the Small Charities Commission said in February 2019 that:
“We know it’s a particularly turbulent economic period for small charities, which are predominantly volunteer-led and largely dependent on individual donors.”
The Scale of the Financial Problems Facing Charities Has Worsened Significantly in a Matter of Days
The figures, as reported by Third Sector, show that the number of small charities disappearing from the Charity Register significantly increased in the 3 years to 2018. In detail, the numbers reveal that, in 2016, 3,856 charities with incomes of less than £1.5m, left the register, while 4,069 left in 2017 and 4,783 left in 2018.
The threat posed by the Coronavirus will only make things worse – much worse. Recent research conducted by the Directory of Social Change revealed that without support, more than 7 out of 10 charities – all charities, not just the smaller ones – believed they were likely to go bust before the year end. Other findings showed:
- Nearly two thirds of charities were furloughing staff, including big, well-known charities such as Oxfam and Age UK
- Only 7% said they qualified for help under the Government’s Coronavirus Business Interruption Loan Scheme (CBILS)
The Government’s Support Package for Charities – is it Enough?
The support package comprises £750m, which is intended to help front-line charity services keep going during the disruption caused by Coronavirus. Of this sum:
- £360m will be directly allocated by government departments in the form of cash grants to those charities providing key services during the crisis.
- £370m will go to small local charities, including those delivering food and essential medicines and providing financial advice.
Welcome though this support is, the Directory of Social Change has commented that the Charity Sector expects an estimated loss of c.£4 billion in income over the next 3 months, at a time when many are seeing a huge surge in demand for their services. Their inevitable conclusion is that the funding gap is over £3 billion and that can only mean many thousands of charities going to the wall.
What can Insolvency Practitioners do to Help?
Here at Antony Batty we have long experience of helping charities in financial difficulties:
- Seeking fresh investment/grants
- Merger with a larger charity
- Controlled wind down through liquidation to reduce disruption and maximise value for creditors
Inevitably, some of these may not be practical or feasible within the current situation. However, it remains the case that the earlier advice is sought, the more that can be done to help things.
These are unprecedented times for businesses, including charities, and people everywhere. It seems inevitable that unless the Government injects more support into the charity sector there will be many insolvencies.
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