According to the Charity Commission’s second annual Charity Sector Risk Assessment, which was published last month, there has been a small increase in sector income. This, the regulator said, marked “the potential early signs of some financial recovery”.
However, it admitted this potential recovery was “uneven” with “continued challenges to financial resilience for many parts of the sector”.
The commission said that “data from charities’ annual returns and reports suggests a slight overall recovery – income growth narrowly exceeds growth in charities’ total spend” but “margins, especially for smaller charities, remain tight”. The report states that at two in five charities spending exceeded income, and one in four charities with incomes below £10,000 reported only just breaking even in 2024.
The commission added that it “encourages trustees to take time to undertake careful and considered financial planning, ensuring income is aligned with operating costs, and to regularly review financial forecasting, taking early steps where variations to costs or revenue point to potential shortfalls”.
The report uses a variety of data sources, including charity accounts and trustee annual reports, reports of serious incidents, case work and investigations, and intelligence referrals from other government agencies and statutory bodies.
As well as the financial risks to the sector, it highlights wider risks. For example, it says the commission has seen an increase in “particularly complex case work”. This often involves charities which operate in areas where there are other regulators involved or where “the boundaries of regulatory remits are not clearly drawn”.
This has led to the commission formally passing information to other agencies – including HMRC, the police, and local authorities – 500 times in the last year, up 8% on the previous 12 months.
The rise of AI was also highlighted as broader risk to the reputation of the sector. The report says that this new technology is being used to generate fraudulent applications to register a charity or apply for grants.
Fewer than half of all applications received by the commission (45%) are now being approved and leading to the registration of a new charity. By comparison, in 2016-17, 72% of applications resulted in a charity being registered.
So, even if there are some welcome signs of recovery, the potential green shoots remain fragile.
Tristan Blythe Editor, Charity Finance
