Second quarter 2011
• Through the increased provision of service contracts, larger charities (particularly those associated with social
care, housing and training) have become increasingly dependent on government funding in recent years.
• Despite the government’s ‘Big Society’ vision, public spending cuts and pressures on households’ disposable
incomes are expected to weigh on sector income.
• Demand for charitable services continues to rise, at a time when a number of major charitable income streams
are under pressure. According to the NCVO (National Charities and Voluntary Organisations) earned income
from central government and local authority (LA) contracts and grants has more than doubled since 2001 and,
as a result, spending cuts across department and local government budgets are expected to weigh heavily on
sector income. Statutory funding reached £12.8 billion in 2009-10 and now accounts for over a third of sector
income. Large and medium sized charities generate around 40% of their income from the government, and
organisations that provide social care, housing, employment and training support tend to be the most heavily
dependent on public funding, generating on average 70% of their income from local or central government
funding. Local authority expenditure is expected to fall at an average rate of 4.4% this year and the government
has urged LAs not to cut spending on voluntary and community groups as fast as their own budgets have been
• While the Big Society agenda recognises the importance of voluntary services, a survey conducted by the Charity
Finance Directors’ Group and PKF found that half of charities expect their grant and contract funding to be
reduced. The March 2011 Budget introduced a number of measures that should encourage household
donations and it is hoped this will raise around £540 million. Philanthropy will be incentivised amongst wealthy
individuals through a cut in inheritance tax for those who leave 10% of their estate to charity, and in order to
maximise the value of smaller donations charities will now be able to claim gift aid on up to £5,000 per year
without the need for donors to sign gift aid forms. Nevertheless, underlying pressures on household budgets will
continue to dampen household appetite to donate.
• The government hopes to increase the role of the voluntary sector in delivering services such as adult social care,
offender management and community healthcare. Nearly £500 million has been earmarked for the Big Society
agenda over the next four years and an additional £100 million transition fund will be available to support
voluntary organisations impacted by public spending cuts. Although some organisations have significant assets,
most (including the largest) have few reserves and so are vulnerable to the sudden loss of key income.
• The Association of Chief Executives of Voluntary Organisations (ACEVO) estimates that sector income will fall by
£4.5 billion over the next four years. As a result, it remains to be seen to what extent organisations that are
already stretched have the resources to satisfy mounting demand for their services. The number of charities
facing financial difficulties is increasing. A recent survey from the NCVO has found that two-thirds of charity
leaders expect that general conditions will deteriorate within their organisation over the next twelve months and
two-thirds expect to reduce expenditure within their organisation over the next year, with over half (double the
number recorded in December) expecting to reduce staff numbers over the next three months.
Appendix 1 – Summary of macroeconomic overview UK: Gross Domestic Product
Quarterly % change (annualised)
• Economic data have been decidedly mixed recently. The official 6
GDP statistics indicate that the economy grew by only 0.5% in the 4 4
first quarter - after adverse weather contributed to a 0.5% fall in the 2 2
final period of 2010 – but seasonal factors such as the late Easter 0 0
and doubts about the accuracy of the weak construction output -2 -2
data make the statistics difficult to interpret. Business survey -4 -4
evidence has been a little more buoyant but has generally weakened -6 -6
in the most recent months and probably indicates that growth has -8 -8
remained below 0.5% in the second quarter. This is set against an -10 -10
90 95 00 05 10
intensification of market concerns about the pace of global
economic growth (although it is unclear to what extent the current
soft patch is due to supply disruptions in the aftermath of the
earthquake in Japan) and the risks posed by the sovereign debt crisis
Purchasing managers' survey
• Unemployment stabilised last year but has yet to show a definite
reversal and prospects remain clouded by planned cuts in 65
A reading above 50 indicates expansion in output
employment in the public sector. Inflation has risen to 4.5%, double 60 60
the target level, partly due to booming commodity prices, the 55 55
weakness of sterling and rises in indirect taxes. Nevertheless, the 50 50
majority on the MPC continue to view the rise in inflation as a 45 45
temporary phenomenon driven by the rise in VAT, higher 40 40
A reading below 50 indicates contraction in output
commodity prices and weak sterling. With no sign of a pick-up in 35 35
wage or inflation expectations, thus far, and signs that the recovery 30 30
remains fragile, interest rates have remained unchanged and 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Services Manufacturing Source: CIPS/Markit/Haver
financial markets have pushed back their expectations of the timing
of the first rate rise until the second quarter of 2012.
• As regards the prospects over the next twelve months, the consumer
sector is unlikely to provide much of a contribution to growth. UK interest rates
Base rates, per cent
Households remain heavily indebted and real disposable incomes are 7.0
under severe pressure from a combination of weak wage growth, 6.0
rising prices and muted employment growth. Indeed, consumers’ 5.0
expenditure has fallen in each of the past two quarters according to 4.0
official figures. And planned government spending cuts – as part of 3.0
the fiscal tightening – will begin to bear down on the economy in the 2.0
second half of the year. 1.0
• Instead, much is likely to rest on the business sector. The rebuilding of 0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
inventories has already played an important part in the recovery and, *Market expectations: 13th June 2011 Source: Bank of England & Barclays Bank
probably, has a little further to go. Although it eased in the final period
of 2010, business investment was 10% higher than a year earlier.
Businesses do not seem to be about to embark on major new
investment but surveys indicate positive intentions to invest, possibly UK consensus economic forecasts: June 2011
partly driven by the resurrection of projects delayed by the recession.
Annual % change
2009 2010 2011 2012
(unless otherwise stated)
And finally, the earlier sharp depreciation of sterling by 25% should Real GDP -4.9 1.3 1.5 2.1
provide companies scope to compete in and exploit export markets.
Consumer spending -3.3 0.9 -0.1 1.4
Government consumption 1.0 1.0 0.6 -1.2
Undoubtedly this will be tough and much will depend upon sustained Investment -15.4 3.1 -0.3 5.6
growth in key export markets in Europe (currently threatened by Stockbuilding (contribution to GDP growth) -1.2 1.4 0.2 0.1
renewed sovereign risks in the Eurozone), but business surveys Net trade (contribution to GDP growth) 0.9 -0.9 1.3 0.6
currently point to a sharp pick-up in export orders. Growth in exports Unemployment rate % 7.7 7.9 7.9 7.9
has been offset over the past year by as surge in imports but the net Consumer prices (CPI) 2.2 3.4 4.3 2.3
trade position was strong in the first quarter.
Base rate (end period) 0.50 0.50 0.50 1.25
Sources: HM Treasury; Bank of England; ONS; Barclays Corporate Economics
• Reflecting the gathering uncertainties, economic forecasts have
generally been revised down recently and now indicate growth of just
1.5% this year and about 2% next, suggesting the continuation of a
protracted but weak recovery.
Prepared by Patrick Redshaw, Head of Economics and Catherine Seymour, Economist, Portfolio Management, Barclays Bank PLC.
All data and factual information referred to in this report were correct as of 17th June 2011
Source of ONS data: National Statistics website: www.statistics.gov.uk
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