The SCVO says that because 42 per cent of charities spent more than they earned last year, the sector is not spending in a sustainable way. David Ainsworth questions whether the statistics support this conclusion.

Yesterday the SCVO put out a statement saying that 40 per cent of charitable organisations in Scotland were spending more than they earned.

John Downie, director of public affairs at the SCVO, seems worried by this. He said that small charities were most likely to be spending too much, that “clearly, this is not a sustainable way forward” and that charities “can’t continue to overspend at this level”.

This annoyed me a bit, because it seemed alarmist. I don’t think the figures support this assessment.

We could just as easily draw the following conclusions:

• Six in ten Scottish charities are squirrelling away valuable donated funds rather than passing them to needy beneficiaries. Large charities are the least likely to pass on funds to vulnerable people.
• In total, the sector underspent by £200m in the year. More than 4 per cent of the sector's budget was stockpiled, not spent on beneficiaries.
• Clearly charities can't continue to leave all this money lying around in bank accounts. In fifty years, if they carry on like this, they’ll eventually get so rich they’ll be able to buy back Berwick and declare it Scottish again.

And so on.

Charities are supposed to earn money and spend money in roughly the same proportions. If you’re a healthy charity, some years your earnings will be a few quid more than you earn, some years a few quid less. Or to put it another way, you should expect to spend more than you earn roughly one year in every two.

I'll admit this is a simplistic interpretation. Actually there are factors which should lead, on average, to charities underspending: inflation and growth in the economy mean that the value of money tends to fall, so you have to have something in reserve.

But then there are other factors which make an overspend likely to be quite frequent, not least the lumpy nature of charitable income and expenditure; charities will often take in income one year and spend it the next.

In short, I don’t know how many charities normally spend more than they earn, but 40 per cent sounds like a completely sustainable figure to me.