The number of North East charities facing insolvency could rise in the year ahead as the voluntary sector faces a ‘perfect storm’, a leading regional insolvency expert has warned.Neil Harrold, North East chair of insolvency trade body R3 and a partner with Hay & Kilner Solicitors, believes recent criticism of charity fundraising tactics will add further pressure at a time when third sector finances are already under strain from cuts in local government spending and a fall in legacy income, among other factors.
His comments follow condemnation of one charity offering pensioners a fuel tariff with a specific energy company even though it was not the cheapest tariff, and allegations of aggressive street collecting and cold calling by leading charities.
A study by the Third Sector Research Centre found that charities employ over 1.1 million people in the UK, including 46,000 in the North East.
Neil Harrold says: “Clearly aggressive fundraising tactics and misleading commercial arrangements are not acceptable and charities need to ensure they are following best practice at all times.
“Unfortunately this controversy could not have come at a worse time. Charities which deliver local services on behalf of local authorities are being affected by spending cuts and facing competition from commercial service providers. Legacy income has been falling and the rise in the minimum wage has pushed up costs.
“Over the past year we have already seen a rise in the number of charities in financial difficulties and it’s reasonable to expect the number of insolvencies in the sector to rise in the year ahead.”
There are over 160,000 charitable organisations in the UK, with more than 4,400 in the North East, but according to the National Council for Voluntary Organisations, income has been falling each year since 2009/10.
Neil Harrold adds: “Charities have to strike a difficult balance – maintaining the focus on their mission, but at the same time ensuring they are financially sustainable. If they concentrate too much on their charitable mission, they risk running out of money, but if they become too commercial, they risk a public outcry.
“The year ahead will be a really testing time for managers and trustees of charities, both regionally and nationally, and where organisations do face financial problems or think they might soon do so, it is important to take professional advice at an early stage.
“Even where the situation looks bleak, there may be solutions such as mergers or shared services that enable them to continue their good work.”