Charities run out of money – just when they need it most

Charities and voluntary organisations are experiencing a damaging drop in funding at a time when the increasingly volatile economic situation will create a greater need for charitable work, a series of gloomy reports have warned.

Plummeting share prices, cancelled direct debit donations and a weak pound are seriously undermining the voluntary sector's efforts to provide relief at a time when the services that charities offer are in particularly high demand.

Figures released by the Charity Commission today show that more than half of all Britain's charities are now suffering as a direct result of the economic situation, up from 38 per cent six months ago, when the recession had yet to hit home.

At the same time, at least a fifth of all charities have seen an increase in demand for their services. Dame Suzi Leather, who is chairman of the Charity Commission, said the impact of the financial downturn on charities was now widening and deepening. "Some charities still face that double whammy of a drop in income as well as an increased demand for services," she added.

There are also growing concerns that the public has become less willing to donate as belts are tightened during times of economic hardship.

Rapidata, which handles more than four million direct debit transactions for the charitable sector, said cancellations of monthly donations "skyrocketed" after the collapse of Northern Rock last summer and that donations have continued to decrease since. Its latest figures reveal that direct debit cancellations in December were 67 per cent higher than the average pre-recession December.

Charities have lost an estimated £32.4m from cancelled subscriptions over the past 10 months, the company said. Direct debits account for about £2.5bn of private donations to charities each year.

Scott Gray, the managing director of Rapidata, said: "We've had a very close look at these figures and what they suggest is that the monthly cancellation rates during 2008 were so high that they were not likely to have been subject to the same factors influencing cancellations before the credit crunch hit."

The voluntary sector has asked the Government to provide assistance. In February, the Government announced a £42.5m bailout, which was less than a tenth of the £500m that struggling charities said they needed to ride out the recession. The money will only go to those charities that are dealing with the direct fallout of the recession, leaving many organisations forced to battle the credit crunch on their own.

Recent research by the National Council for Voluntary Organisations showed cash donations to charities fell by £367m to £1.3bn in 2007-08 compared to 2006-07.

Phil Lloyd at the Dame Hannah Rogers Trust, which provides therapy and care for children with profound disabilities in Devon and Cornwall, said demand for its charitable services increased by 73 per cent over the past year, but donations had dropped by a third over the same period. "As even tougher times threaten, charities face many difficulties," he said. "Running costs have risen and falling property prices diminish the value of legacies. Add to that a reduction in not only public but corporate donations as businesses hit the reality of recession."

St Luke's Hospice in Plymouth, which cares for more than 2,000 terminally ill patients every year at a cost of more than £5m, is facing a £500,000 shortfall because of knock-on effects on the charity's investments, which have reduced in value by £120,000, and has had to make a number of staff redundant.

Acorns: 'Making redundancies has been heartbreaking'

Acorns is a charity with three children's hospices in the West Midlands caring for 600 desperately ill patients. Despite the publicity it received when Aston Villa agreed to display the Acorns logo on club shirts for nothing this season, the charity has experienced a decline in donations.

David Strudley, Acorns' chief executive, explains why it is now having to make 14 staff redundant: "In the course of about six weeks before Christmas corporate and private donations just dried up. It was like suddenly going over a cliff. It was so quick and so fast.

"We did some fundraising over Christmas which provided, but it hasn't cured the problem. What we've found is that the number of donations hasn't declined, but the amount of money coming in has. We now need to make about £1.5m in savings, so we're having to let a few people go which is heartbreaking.

"Our main priority is to keep our beds operating for those who need them most. But we make no secret of the fact that the next year is about riding out this recession and coming out the other end intact."

£32m

The amount that British charities have lost through cancelled payments over the past 10 months.