Charities reserves already perilously depleted on the eve of pandemic, research reveals

The financial reserves of one in ten charities were almost running out on the eve of the first Covid-19 lockdown, academics have revealed.

The first UK wide lockdown in March saw charity incomes decimated, through the cancellation of events and closure of charity shops.

But research has found that many charities' reserves were already close to running out before the pandemic’s impact.

The accounts of more than 12,000 charities were looked at for the financial years ending in 2018 and 2019.

Remaining reserves at around a fifth of charities were equivalent to less than a month of expenditure. One in ten charities had just a few days reserves, or less.

The research has been revealed in the report Assessing the financial reserves of English and Welsh charities on the eve of the Covid-19 pandemic by academics at the University of Birmingham and University of Southampton.

Their report found that charities focused on culture and recreation, employment and training and social services are more likely to have low levels of reserves, typically under four months of expenditure.

Charities established in the last 25 years are among the most vulnerable. They typically held reserves to cover running costs for around three and half months

In contrast, charities that have existed for 50 years were found to have reserves covering costs for more than six months.

Regional variations emerged. Around half (48%) of charities in Yorkshire and Humberside have less than three months reserves, while the proportion with limited reserves is less in Wales (46%), the East Midlands (45%) and London (44%).

“Charities face a difficult balancing act in taking decisions about reserves,” said report co-author Professor John Mohan, of University of Birmingham’s Third Sector Research Centre.

“They face great pressure to spend the money they have been given but they also need to ensure that they are in a position to withstand financial shocks.

“The pressures of a global pandemic are placing charity finances under severe stress. Most charities have a mix of income sources, which are affected in different ways – almost all face-to-face fundraising and charity shop activity being especially hard hit.

“It is particularly unfortunate that they are likely to be more vulnerable financially precisely at the point where expectations of their contribution have never been greater.”