Over half of charities will consider redundancies in response to the shortfall in income, according to the fourth report in the Managing in a Downturn series, produced by the Charity Finance Directors’ Group (CFDG), the Institute of Fundraising (IoF) and PwC.

The report, which involved around 250 charities, shows that 54 per cent of charities forecast an increase in their wages bill over the next 12 months, while near the same amount (55 per cent) will consider redundancies in response to less income.

The report says this suggests that in some cases redundancies could be made whilst providing for salary increases, “we would urge charities to consider carefully the level of any pay increases and the implications these will have,” it says.

Some 51 per cent of respondents to the survey receive public funding. This group anticipates on average a statutory income cut of 8 per cent. The report calculates that this represents a reduction of approximately £1.2bn in statutory income.

Further, the survey found that in the 12-month period to August 2010, nearly all charities with statutory income (93 per cent) had experienced a real-term reduction in income levels from statutory sources, a 13 per cent increase from the findings of the February 2010 report.

Charities are also experiencing a demand for services, the survey has found, with the smaller end of the sector bearing the brunt.

Some 62 per cent of small charities have seen an increase in demand for services, while only 22 and 27 per cent of medium and large charities respectively, have seen more demand from beneficiaries.

However, around 40 per cent of respondents indicated that they will cut back on services.

With regard to reserves, the survey indicates that 44 per cent of all respondents indicate to utilise reserves in the coming 24 months, however only 15 per cent of respondents have reserves sufficient to cover more than 12 months of core operating costs.

Charities are also continuing to consider mergers, with 21 per cent of respondents indicating they were considering collaborative working.