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Two out of five charities fear they face closure if the economic situation does not improve. Photograph: chris brignell / Alamy/Alamy
Two out of five charities fear they face closure if the economic situation does not improve. Photograph: chris brignell / Alamy/Alamy

One out of six charities say they may have to close in 2013

This article is more than 11 years old
Charities fall foul of public spending cutbacks and falling donations

The UK's flatlining economy is having a devastating effect on charities, according to research that suggests that two out of five face closure, with many set to disappear as early as next year unless things improve.

A poll commissioned by the Charities Aid Foundation confirms that public spending cutbacks and falling donations are conspiring to devastating effect. The foundation warns that as many as one in six charities believe they may close in the coming year, while nearly half say they are being forced to dip into reserves. One in three say they fear being forced to cut services.

The figures will make gloomy reading in Downing Street, which believes the third sector has a vital role to play in delivering the prime minister's vision for his "big society". The funding crisis comes as charities report that there is more demand for their services.

"Times are tough and people have less money to donate to charities," said John Low, Caf's chief executive. "This, combined with significant public spending cuts and increased demand for charity services, is having a shocking effect on many charities, calling into question their very viability. Many organisations are having to dip into their reserves, cut vital frontline services and some are even concerned about whether they can survive in these toughest of times."

Charitable donations in the UK dropped by a fifth last year, according to an earlier survey by Caf and the National Council for Voluntary Organisations, from £11bn to £9.3bn during 2011-12. As a result, more than eight out of 10 charities believe their sector is facing a crisis, with two in five (40%) fearing they face closure if the economic situation does not improve. Nearly three-quarters (73%) believe that they are unable to fulfil their goals, while one in four have axed staff.

Smaller organisations are acutely feeling the effects of the prolonged recession, according to the poll. Research by Caf reveals that small- and medium-sized charities are facing spiralling losses. They reported deficits of more than £300m in 2011, compared with a surplus of £325m in 2007.

Along with the National Council for Voluntary Organisations, Caf has launched a campaign, Back Britain's Charities, that calls on the government, businesses and the public to get behind the nation's charitable organisations. It wants the government to modernise and promote gift aid and payroll giving so that donations go further. It is also calling on businesses to support charities either through donations or practical means.

"Charities of all sizes play an essential role in our society, providing social care and education as well as helping some of the most vulnerable people in our communities," Low said. "We all need to act now to support Britain's charities so they can continue their vital work."

Adrian Nottingham, chief executive of the Manchester-based charity Mustard Tree, which runs soup kitchens and supplies food parcels to homeless and vulnerable people, said his organisation was between two and three months away from having to close.

"Donations have remained stable but our expenditure is increasing," he said. "Food and fuel and transport costs are rising and grants have fallen. It's a perfect storm. We're getting more clients but we can't increase our revenues. We've eaten into our reserves and the trustees will have to look at whether there is still enough to pay off debts and staff. Harsh decisions will have to be made in the new year when we will have to lay off staff. It's a precarious situation."

CAF was instrumental in forcing a government U-turn earlier this year over plans to limit tax relief for wealthy donors who made large donations. It warned that the move would have a devastating impact on the culture of giving in the UK.

The chancellor, George Osborne, has been seeking to encourage the public to donate more. He has expressed hopes that it will become the norm for people to leave 10% of their wills to charity and has lowered the inheritance tax levied on the estates of those who do from 40% to 36%, to encourage the move.

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