Brexit and Charities
The only certainty is uncertainty
Given the uncertainties around the UK's exit negotiations from the EU it is not possible to fully evaluate the exit's impact. This makes planning for the future even harder, particularly given other challenges the UK charity sector has been facing over the last year.
Charities need to factor this uncertainty into in their future planning. Organisations that survive and even flourish will be those that make good lasting decisions.
Six areas to consider
Strategies and scenario planning
- Strategy: still fit for purpose and achievable.
- Scenario planning: gain perspective on critical issues and make decisions about capital investments and budgeting. Identifying those that will impact negatively on your charity.
- Financial planning cycles: shorter cycles than those traditionally used given that it is unreasonable to make accurate assumptions.
- Management decisions: decision trees will help managers structure and consider sequencing of their decisions.
Management structures and skills, including those of Trustees
- Pivotal roles: identify right individuals with right knowledge skills and experience to act decisively.
- Decision making process: ensure it allows your charity to respond quickly, effectively and collaboratively.
- Regular horizon scanning: share of information between senior management team and Trustees.
Budget and planning
- Assumptions: often these become invalid in uncertain times due to changing circumstances.
- Alternatives: rolling budgets or planning a base case, optimistic case and a pessimistic case.
- Contingency funds: cushion against downsides or for emerging opportunities.
Performance management
- Individual performance: review measures to ensure they include interest areas and collaborative working.
Reserves policy
- Ensure your reserves policy links to your charity’s risk management and forecasting process.
- Reassess the charities understanding of why the organisation needs reserves, what is the appropriate level and reasons for their use.
Issues to consider
- Income: how volatile is it and what is the level of at risk income?
- Expenditure: what is its nature and can it be cut back easily?
- The nature of the reserves: what is their ability to be realised and what is the impact of doing this?
- Sensitivities and risk associated with assumptions made.
- Are reserves cash-backed where appropriate?
- Have other financing options available been considered?
- Are reserves being held for contingencies already provided for in budgets?
- Has the timing of cashflows been adequately considered?
- What is the impact of changes to the risk profile of projects and their funding structure?
- What is the cost of continuing programmes that are not fully funded? How quickly could programmes be shut down?
- How flexible is the use of restricted funding?
Risk registers to reassess
- Scoring of existing risks
Risk management methodologies: ensure you use new methods focusing more on the impact of risks than the likelihood. - Your risk vulnerability.
Impacts to consider
Charities and their Trustees should, in the short- to medium-term, consider the threats or the downsides arising from the general macroeconomic impacts of Brexit. These some of the areas charities may need to consider in their strategic planning, budgeting, forecasting and risk registers.
- Fall in interest rates will mean a fall in investment income impacting resources available for grant making trusts and foundations and those holding investments.
- Fall in interest/bond rates will mean a fall in discount rates and therefore a rise in pension deficits/liabilities.
- Fall in property prices will impact property funds held as investments and also properties sold as part of legacies.
- A reduction in disposal incomes (as a result of falling interest rates and general shrinking of the economy) may lead to a fall in charitable giving and donations.
- Tightening of public finances may lead to a fall in government funding for services and/or a requirement to deliver more for less.
- The uncertainty may mean that some corporates will be focusing more on their own commercial returns and there may be less available for social responsibility programmes or corporate giving.
- The UK has enshrined in law its commitment to spend 0.7% of its Gross National Income (GNI) on aid every year. In tightening fiscal conditions, there is a possible reduction in the GNI which will therefore mean a reduction in the amount available for the aid budget.
- Rise in demand for services provided by charities as there may be a tightening of public finances and an increase in unemployment.
- Tightening of immigration rules on EU citizens will most impact charities reliant on employing EU citizens such as those in the care and nursing sectors, those employed in research and artists and entertainers. The care and nursing sectors are the sectors currently most under stress of recruiting and retaining staff and have been impacted by the Living Wage which is set to increase again next year. In any case a number of charities employ EU citizens and their position is as yet unclear. More information on the Brexit consequences for employers of overseas staff is available on our Brexit Hub.
- The UK is a draw for foreign students and for students from the EU zone. The tightening of immigration rules may impact this flow.
- Charities receiving grants or funding from the European Union will be impacted and will need to set up or utilise branches within the EU zone or consider collaborating and partnering with EU based charities.
- The fall in the value of sterling compared to the Euro and US dollars will impact programme delivery for overseas charities who will be able to deliver less as costs will be higher.
Naziar Hashemi
Head of Social Purpose and Non Profits
London