Having tried to avoid it for months, we’ve finally caved in to the need to write a short article on the possible implications of Brexit for small to medium sized charities in the UK. As today should have been Brexit Day, it seemed as good a day as any to have a go at this thorny subject.
While most people are sick and fed up of the Brexit debates and the associated confusion and uncertainty, it is inevitable that there will be implications for charities of all sizes. In our view it is unlikely (in any credible future scenario) that there will be a major cliff edge of change affecting UK charities as a result of Brexit. The rest is really crystal ball gazing as the uncertainty surrounding the long-term EU/UK relationships continues; but sometimes we need to look into the crystal ball to help manage risk and that is what we’ve tried to do here.
As far as we can see, the implications of Brexit for small and medium sized charities are likely to fall into three areas:
Funding and financial risks.
Changing demand for charity services.
Whatever the impacts of short-, medium- and long-term decisions arising from Brexit on both domestic policy and the UK’s relations with the EU and a rest of the world, it seems to us that there will inevitably be impacts on charity fundraising and income generation.
There will certainly be direct impacts on the £250m or so that charities in the UK receive each year from the EU. The government has committed to creating a UK Shared Prosperity Fund to replace EU Structural Funds but formal consultations promised for late 2018 haven’t materialised. Therefore, it remains unclear what priorities will be adopted, how much will be available and how the money will be distributed.
There has been speculation that Local Economic Partnerships (LEPs) may have a bigger role to play but no-one really knows. It’s equally possible that the short-term impacts of Brexit on public finances will reduce the size of, or delay the introduction of, such funding.
If your charity has a heavy dependence on EU funding you would be well advised to plan contingencies for changes in (or even disappearance of) that funding and to invest time in building relationships with LEPs and local authorities who may be involved in deciding how future funding is distributed.
There are also likely to be indirect impacts on other forms of fundraising as a result of changes to the UK economy arising from Brexit. This is where we really do get into crystal ball gazing, but such impacts could include:
A short- to medium-term reduction in funding from individual giving, particularly from high net worth individuals (who have been showing signs of uneasiness about making substantial donations in a period of uncertainty).
Reduced (or increased) legacy income as a result of changes in house prices.
Fluctuations in exchange rates impacting either income from overseas and/or the cost of providing services overseas.
In our view, it is also important for local fundraising efforts to be more sensitive to local community views on Brexit and the issues underlying the June 2016 referendum campaign. It has been shown there is a correlation between the average amount of charitable spending per head in remain voting areas (ca £618) and leave voting areas (ca £456). Is it possible the sector has found itself caught short on understanding and responding to the concerns of people in their area that played into the Brexit debate? Some self-reflection may be in order to ensure engagement and local fundraising campaigns are as effective as they should be.
In the short-term, the impact on the regulatory regimes affecting charities are likely to be limited. As regimes in the EU and the UK start to diverge over time, this could place some strain on charity governance; e.g. the need to update policy and procedure frameworks and, for those working across EU borders, the need to work within more than one system.
One likely immediate (or at least short-term) impact could be in the vexed area of Data Protection and, in particular, the transfer of data between the UK and the EU (particularly from the EU to the UK). What the steady state regime will be remains unclear, but as a recent article from the Office for Civil Society shows, there may be short term impacts that need to be carefully managed by some charities.
Demand for services
Brexit will, over time, certainly have impacts for the UK economy and social policy. These could have positive or negative effects on the beneficiaries of your charity and will inevitably vary over time. What those impacts will be and when they will arise is impossible to predict. However, if you can see potential impacts that could increase (or reduce) demand for your services or necessitate the provision of different services, you should be planning for those contingencies so that you can continue to deliver the greatest possible public benefit from the work of your charity.
In the end, with uncertainty likely to continue for some time (years rather than months), Brexit crystal ball gazing is really an exercise in risk management for charities; albeit an increasingly important exercise as the potential impacts become clearer (and closer in time).
If you would like to discuss any of the issues raised in this article or risk management more generally we'd be delighted to hear from you. Simply contact us at email@example.com to arrange free initial telephone discussion.