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Crisis management Charity finance policy Environmental, social, governance (ESG)

From red to green, but what does it mean for us?

Following the Government's announcement at the weekend about the subtle relaxing of lockdown measures and the Chancellor's announcement earlier today on the extension of the Coronavirus Job Retention Scheme until October 2020, Caron Bradshaw reflects on the Government's shift of tone to prepare for life after lockdown.

Much of the Government’s new stance on Covid 19 lacks clarity. But it’s clear the tone has shifted; the visual imagery has changed from ‘hazard’ red to ‘let’s get moving’ green. It is not the only shift. Government is starting to move into its next phase – life after lockdown.

Talk of recovery for charities still in crisis and survival mode may feel galling. But consider it we must. In response to the announcement from the Chancellor of the extension until the end of October of his flagship initiative, the Job Retention Scheme (JRS), I wanted to take the opportunity to share some thoughts.

For clarity, let’s divide this into two parts; a) how the JRS works for the sector now and b) what the impact of any transitioned end of the JRS might be.

There is no doubt in my mind that Rishi Sunak’s scheme has been the single most important measure in the COVID 19 package for charities. For many in our sector it has meant the difference between survival and collapse. But, as I have said so many times - the picture is not that simple. We are not one sector. We are multiple sectors, with differing business models, held together by a desire to change the world for the better. I therefore can say, without it being contradictory, that the scheme is also not fit for purpose.

For those whose activities ceased, by virtue of their business models, upon lockdown the ability to furlough staff and receive 80% of their salary in the form of a non repayable grant was fantastic. This remains the case. For others the ability to take some tough decisions to mothball activities and furlough was equally necessary - even if it was not welcome and felt counterintuitive to the nature of our work. We estimate that the JRS is worth around £400m to the sector a month. Clearly a sticking plaster on the estimated £1.3bn per month wound - but essential nonetheless.

There are essentially two major faults.

Firstly, charities need to be flexible with their resources, cross subsidising in ways that businesses would not. This is not the concept of ‘loss leaders’ where one unprofitable service opens a rich seam of income in another area. Charities are driven by the impact not the financial viability of activity. Making it work and balancing the books is part and parcel of that.

One area of activity being delivered by skilled staff, might be rendered inactive by lockdown, and those staff could logically be redeployed elsewhere to respond to increased demand. However, despite furloughed staff being free to volunteer generally they are not able to do so within their own charity. This seems nonsensical. Not only does it speak volumes about the suspicion that fraud is around every corner or that special pleading within this sector will lead to abuse and fraud across all sectors, it also makes no financial sense. Why pay for staff to sit at home as charities struggle to meet beneficiaries’ needs when giving charities an exemption permitting volunteering within their own charities (for public benefit) would be cost neutral? If fraud is the fear - safeguards and conditions could easily be put in place.

The second is a perverse incentive to mothball when we should be mobilising. In our sector income and activities do not match. Unlike in a market scenario, being busier doesn’t mean you’re generating more cash. Demand and income often bear little correlation to each other. This is further compounded by the complexity of our business models. We know from our Finance Count data that this subsidising exists in the delivery of public services too; frequently we are already delivering public services at a loss. I hear almost daily of the plight of charities unable to balance this underfunding, present in the ‘business as usual’ situation of normal times, being exacerbated by massive increases in demand. Not only, in this scenario, can you not furlough those staff without abandoning those you serve, you also run the remaining staff ragged trying to meet increased need at the very time your income has gone through the floor. A scheme which allowed the same 80% staff contribution to be paid where staff cannot be furloughed but where the charity has suffered a substantial reduction in income would truly live up to its name and aid job retention.

For a large number of charities the scheme, designed with business in mind, just doesn’t work. As the DCMS select committee so rightly pointed out in its report “…charities are not the same as businesses…to suggest they should be treated the same ignores the fundamental principles upon which their work is based and the nature of their contribution to society”.

And therein is the problem. Charity is an after-thought, expected to fit in with schemes designed with business in mind. It’s no surprise therefore when schemes fail to be fit for purpose for us.

Turning my attention to what Rishi Sunak didn’t say, but which we all know will come, the weaning of the economy off the life support of the JRS. At some point the Government will phase it out. Perhaps through reduction of the grant from 80% of capped salary to a lower figure (say 60%). Or support might be time limited sector by sector.

For charities a reduced contribution might be the straw that breaks the camel’s back leading to at best widespread redundancy and at worse further organisational collapse. Not only will we need to adjust to the impact on our individual charities we will have to absorb the fall-out from every other sector too as our communities experience business closure, poverty and loss.

Charities have fought hard to support communities –we are #NeverMoreNeeded in every aspect of life. Will Government take the opportunity to build back better? Will it accept the need for greater nuance and tailoring if the fabric of our society is to come through this crisis in one piece? Or, will it rest back on old habits and expect our sector to fit in with structures designed with private enterprise, not public benefit, in mind?

It is essential that greater thought is given to charities in exiting the crisis than was given coming into it. If Government fails to recognise the role we play and support us to rebuild society after Covid 19 is conquered, it will be an ideological choice and failure and not because they were not informed.

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