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Economic downturn

The UK economy’s long period of growth has ended and the UK has been in recession (two quarters of falling economic growth) since July 2008. This was prompted by key global problems including the 'credit crunch', house price bubbles, volatility in financial markets, and rising commodity prices. Although the economy has now been stabilised and the rate of contraction has slowed, uncertainty remains about when long term, sustainable, growth will return. Many are urging caution with the rhetoric of recovery not necessarily matching the reality. The current consensus from economic forecasters is for subdued growth in 2010. However, economic trends in the public and voluntary sectors traditionally lag behind the private sector, as does unemployment. So whilst the private sector is emerging from its recession, many are forecasting a ‘W’ shaped recession with the public sector recession yet to come.

What are the implications?

• The BoE is likely to continue to maintain low interest rates and pump money into the economy (quantitative easing) to stimulate growth and prevent deflation, unless long term inflationary pressures start to have an effect.
• Continued stock market volatility until there is sustained growth in both the UK and worldwide economies.
• Unemployment will continue to rise, particularly in the public sector (one of the largest employers in the UK) which could ease skills shortages and lead to a potentially larger pool of volunteers.
• The effects of the downturn and notably unemployment and debt will lead to an increase in levels of poverty.
• Social tensions are likely to increase as competition for resources increases.
• There will be increased demand for services delivered by the VCS, particularly welfare services, advice and counselling (e.g debt, housing, employment).
• Over the longer term, certain areas of the VCS may emerge stronger out of the recession (as was seen with homeless charities after the 1980s recession) leading to changes in the number of general charities and the polarisation of the sector.
• People may look to their communities for more support in the short term, which could present new longer term opportunities for community groups (see attitudes to community responsibility.)
• Individuals are likely to reconsider their charitable giving – current evidence has shown that charitable giving is falling. However evidence from other recessions is that giving does not fall but that donors focus on causes they already support (see planned individual giving).
• Funding from government is likely to fall - evidence from other recessions is that income from government fell - leading to an even greater focus on efficiency and value for money and changes to levels and sources of income.
• It is likely that corporate giving will fall as this has been shown to follow economic cycles more closely than individual giving.
• Charities’ investment and legacy income will be affected by the falling value of assets (equities, bank deposits, property) and lower interest rates.
• Falling investment income will mostly hit trusts and foundations – evidence suggests that a majority will maintain or reduce grantmaking.
• There will be lower demand for ‘luxuries’, potentially including ethical products and services, membership subscriptions and fee-charging leisure and cultural activities (e.g theatres) which may also present a risk for social enterprise activity.

Moving forward

It is more important than ever during these tough times for organisations to plan ahead. It is vital to look carefully at your objectives and funding streams and ensure that you have the strategies in place to deal with any likely changes.

1. Plan for the downturn now. Look at your funding streams, beneficiaries and costs and plan likely scenarios for your organisation. Be realistic and don’t wait until it’s too late. Can you be more efficient in the way you do things? Can you save money by outsourcing some of your office functions?
2. Revisit your costs. Use this opportunity to renegotiate contracts with your suppliers (who will need your business more), or see if you can save money by switching to NCVO’s recommended suppliers
3. Develop your volunteers. Are you making the best use of their skills? Do you have a strategy to attract the volunteers you need, especially the pool of highly-skilled newly unemployed.
4. Build your network. With the sector facing the squeeze, collaboration can enable you to achieve more and accomplish your aims, despite having fewer resources.
5. Demonstrate your success. Measuring outcomes and demonstrating impact is notoriously hard to do. However, it is a great way to improve your chances of securing funding.”

Want to know more?

The impact of an economic slowdown on the VCS - seminar summary

Published by: NCVO

Date: July 2008

What is it?: A write up of our July seminar on the economic slowdown, including audio files of and slides of presentations from Peter Hahn of Cass Business School and Keith Hickey of the Charity Finance Directors' Group and a summary of the opportunities, risks and actions identified by participants.

Economic downturns and the voluntary and community sector: a short review of the
evidence

Published by: NCVO

Date: November2008

Format: PDF and Powerpoint

What is it?: A 13 page paper summarising the evidence that is available on how an economic downturn impacts on the voluntary and community sector, including reference to 54 sources, some of which are freely available (see below). A short summary of the paper is available here. Powerpoint slides to accompany the paper are available here.

All our saved links to resources about the impact of the downturn on the sector

Published by: NCVO

Date: Ongoing

Format: Web

What is it? An archive of free online resources relevant to the impact of an economic downturn on the sector, including both research reports and media articles and sources from the UK, US and other countries.

Notes from the NCVO Recession Summit on 24 November 2008

Published by: NCVO

Date: November 2008

Format: Web

What is it?: Notes from a summit at which sector leaders and government figures debated how the sector could respond to a downturn and how government and the Charity Commission could support the sector.

NCVO’s recession resources

Published by: NCVO

Date: Ongoing

Format: Web

What is it?  A web page which links to all NCVO’s advice, news, policy updates and support for the VCS on how to manage in a recession.

How useful is this? A wide selection of different types of advice and information all in one place.

Forecasts for the UK economy

Published by: HM Treasury

Date: Monthly

Format: PDF

What is it? Monthly summaries compiled by the Treasury which compare and contrast independent forecasts of key economic indicators.

How useful is this? The summaries contain a comprehensive range of independent forecasters with detailed tables of data forecasts. The averages are then collated in easy-to-read charts. The forecasts do not provide any new information on Treasury's own views and no significance should be attached to the inclusion or exclusion of any particular forecasting organisation which is subject to review.

Future scenarios for a short, shallow or long, deep recession

Published by: NCVO 

Date: 2009

Format: Web and PDF

What is it? Four scenarios that explore the possibilities of a short, shallow or a long, deep recession alongside a change in government in 2014 developed in a NCVO Policy Forum Seminar. 

How useful is this? A change of government and the recession were selected by participants from a range of VCOs as the two highest impact, most unpredictable drivers likely to impact upon the public policy agenda and policy making in the future.  The possible scenarios envisaged are particularly useful to anyone interested in how the economic downturn coupled with a change in government may impact upon their organisation

Other comments: The imagined scenarios are examined in more detail in the comments on the original web page as well as more questions for organisations to consider.