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Many English and Welsh charities had low levels of financial reserves on eve of pandemic

Many charities in England and Wales have very little reserve cash. Credit: Getty.
Many charities in England and Wales have very little reserve cash, according to a study. Photo: Getty

More than a fifth of charities in England and Wales had less than one month expenditure in reserve at the beginning of the pandemic.

Financial data from 12,700 charities for the years ending in 2018 and 2019 was analysed by a team of researchers from the University of Southampton and University of Birmingham.

The study found that around 10% of charities had only a few days’ reserves or less.

The figures were based on by charities with incomes or expenditures greater than £500,000 ($661,000).

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The report also found certain charities – culture and recreation, employment and training, and social services – seemed more likely to have low levels of reserves, with under four months of expenditure on average.

Charities established in recent decades were also more vulnerable. The study found charities founded more than 50 years ago typically held reserves to cover running costs for over six months, whereas charities in existence under 25 years had around three and a half months expenditure in reserve.

Charities whose principal income source was sales and contracts for delivering services appeared to have lower-than-average reserve levels.

Charities based in different regions of the country also had different levels of reserves. Nearly half of charities in Yorkshire and Humberside had less than three months reserves, followed by Wales (46%), the East Midlands (45%) and London (44%).

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Co-author of the report, Professor John Mohan said: “Charities face a difficult balancing act in taking decisions about reserves. 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.”

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