We’ve been somewhat distracted here in the US with our own looming election, so perhaps we can be forgiven for forgetting that another monumental, electrically charged election nicknamed ‘Brexit’ happened two months ago this week in the United Kingdom. If your nonprofit has constituents in the UK or Europe, this will be much on their minds because it has likely already had a significant impact on their personal finances. Now that the dust has settled a bit, I asked my colleague Marc Whitmore at More Partnership (that’s him in the photo) to give us some insight on what’s happening with Brexit through the philanthropy and fundraising lens. It’s a fascinating read – enjoy! ~Helen
What the hell happened, Britain?
Quite. Well, in May 2015, the UK elected a Government with the manifesto pledge to hold a referendum with a simple question: should the UK remain in or leave the European Union? That referendum took place on 23 June 2016, and 51.9% of those who voted, voted to leave the EU.
Crikey! That was a turn up for the books.
Indeed. And the surprise extended to many including: the then Prime Minister (David Cameron), stepped down on the morning of the result and was replaced by Theresa May; those associated with the Leave campaign find themselves tasked with delivering it (our Foreign Secretary – Boris Johnson; our BrExit minister – David Davies; our foreign trade minister – Dr Liam Fox); and some others declared that their life’s work was now over (Nigel Farage, leader of the UK Independence Party).
Alongside all of this, the official Opposition to the UK Government (the Labour Party) is going through a drawn-out leadership contest and while the United Kingdom has overall voted to leave, there are calls from some of the component parts of the United Kingdom (Scotland and Northern Ireland) to stay. Our European friends are, understandably, none too pleased either (see “From gloomy to glad, Europeans respond to Brexit vote,” Financial Times 4 August 2016, here).
I thought you were supposed to be all “keep calm and carry on”? So you’ve left?
No. Not quite. Apparently that requires us to notify the European Union that we’re leaving (that we wish to activate “Article 50”) in line with our somewhat fuzzy constitutional requirements. How we do that, given our constitution isn’t written down anywhere handy, is proving tricky, and opinion remains divided between those who want a quick exit and those who favour activating Article 50 in Spring/Summer of 2017. What we do know is that from the moment the button is pressed, we will have two years to work out the terms of the separation. During that time, the status quo will remain.
All we know for certain is that, as the Financial Times noted on July 7, “Brexit seems set to consume Britain for years to come” echoing the words of the Bank of England that “it will take time for the United Kingdom to establish new relationships with the European Union” (Bank of England Financial Stability Report, 2016).
So we’ll need quite a lot of tea for some time to come.
Sounds like bad news for the economy …
I’m a fundraiser. Economics is above my pay grade. And I voted to Remain, so maybe my opinions are coloured by my politics. However, reading the mainstream financial press, views continue to be strongly divided about the medium/long-term impact (with views about whether it’ll be positive or negative diverging largely along the voting lines of the referendum). What does seem relatively certain is the consensus about the short-term impact:
- It looks like we’re in for another slowdown. The Bank of England has predicted a slowdown as a result of the vote to leave the EU (“BoE set to cut rates to avert predicted Brexit slowdown: Bank predicts slowdown following vote to leave EU,” FT 11 July 2016: here)
- Which means wider austerity is unlikely to go away any time soon. The financial crisis of 2008 resulted in a period of austerity for the UK and while it looked as if growth might have been about to return, BrExit seems to have put a stop to that. The cut in corporation tax from 20% to 15% announced last past week (to keep UK Plc competitive) alongside the withdrawal of EU funds and the ongoing uncertainty, collectively mean that austerity seems highly likely to continue (for example, see “Councils prepare for years of hardship,” FT 8 July 2016: here and “Scientists urged to look for positives: experts warn Brexit will cost about £1bn a year in research cash from EU programmes,” FT 30 June 2016: see here).
- Households have been spooked. Household confidence has taken a hit (“UK consumer confidence: what the analysts think,” FT 8 July 2016: see here) and analysts are expecting this to feed directly through into the economy over the next 6-12 months.
- The likelihood of a spike in inflation is high. Sterling dropped 13% and while this may help UK exporters, others doubt it will be positive (“Harsh realities of a weakened pound: sterling’s malaise set to hit households harder than they expect,” FT 8 July 2016: see here). Commentators in particular have noted that the drop in sterling means petrol is more expensive and imported goods will be too (“Brace yourself for the toxic mix of falling interest rates and a spike in inflation,” Daily Telegraph, 4 July 2016: see here). Resulting from this, inflation is predicted to spike in the short term and therefore the Bank of England is worried that this, coupled with high levels of household indebtedness, will weigh on household disposable income (Bank of England Financial Stability Report, 5 July 2016: here).
Quite. All this politics and economics is making my head hurt. And the August holiday season has taken most of our political leaders off the scene, so economic and general news has been thin on the ground. Frankly, I’d much rather be talking about the difference those we work with are making to the lives of others – in education, in the arts and cultural, and in the wider not-for-profit sector.
Alright then, so surely all this will surely impact fundraising income?
Almost certainly, yes.
But all this talk of economics reminds me of something Ronald Reagan once said … “oh for a one-handed economist.”
So … on the one hand:
- As fundraisers we know we make our own luck, and a continuing faith in the impact of the institutions we serve will stand us in good stead;
- The wealthy continued to give in spite of the financial crisis of 2008 (see the Barclay’s Wealth report on Tomorrow’s Philanthropist, here) and research from the Centre for Philanthropy, Humanitarianism and Social Justice at the University of Kent looked explicitly at the question in 2009 (see here);
- We know from our analysis of data on giving to the Higher Education sector as a whole (see here) that while the overall level of giving took an immediate dip post 2008, the numbers of donors rose steadily; indeed, during 2010-14 while the numbers of donors participating in regular giving activities (gifts <£10k) rose a modest 0.1%, the value of the gifts these donors gave rose annually from £6.5M to £10.6M (see here).
- Furthermore, Nick Hillman (former advisor to Conservative ex-Universities Minister David Willetts) suggests that Higher Education institutions might find themselves better off as a result (see here) and others such as the National Council for Voluntary Organisations have noted that while income to not-for-profit organisations from the UK Government took a dip in 2009/10, the sector as a whole has returned to largely pre-crisis levels, but with a significant change in its income streams towards earned income (through contracts) and away from direct grants from Governments (see here).
The optimistic argument therefore goes that the great strength of British institutions is their resilience and flexibility, and while there may be a short-term shock and a re-orientation of priorities, good organisations will make the most of the opportunity in the end.
But, (with apologies to The Gipper) on the other hand:
- None of the scenarios predicted by forecasters for the next 2-3 years are ones in which it is expected that UK Plc will take a financial hit as a result of the shock;
- 67% of the £1M+ gifts given in 2016 came from donors based in London (see the Coutts Million Pound Gift report 2015, here). Although London’s pre-eminence in financial circles is unlikely to be devastated, uncertainty surrounding the role the City of London will play is likely to be high for some time (see here). The number and scale of gifts from hedge funds and others in financial services, a traditionally strong source of large gifts in the UK, therefore looks set to take a knock;
- The financial pressures for everyone else – an uptick in inflation, downward pressure on wages, pressures on property prices, and flat interest rates – suggest that disposable incomes will flat-line at best, and, at worst, drop for some time; evidence from the financial crisis shows that incomes didn’t recover their 2008/9 levels again until 2014/15 (see here).
- Low interest rates and higher inflation are likely to continue to impact older donors disproportionately; donors who have traditionally been the most generous both through cash terms and through legacies.
So those with a more pessimistic frame of mind see years of further financial trauma, at both a national and individual level.
So what does that mean for me and my team?
Whether you are a Tigger or an Eeyore, it really does look like everyone’s in for “a squeeze.” As such, it will pay to be prepared for the challenges of the next few years. Now is a time to act defensively and there are five actions to take to ensure you are best positioned for whatever happens in the short to medium term:
- Sharpen your story and make it ever clearer; focus relentlessly on the impact of your organisation. No organisation – university, charity or museum – has a right to exist. Each does so because of the difference it makes to the lives of others. There has never been a more important time for organisations to articulate the impact they have in as clear and compelling a way as possible. Demonstrating this will be the single best way to keep existing donors loyal and engage new supporters in your work. Practically, this includes ensuring that the story you tell your existing and potential donors is as sharp as it can be, through to confirming that new hires develop fluency in the subjects for which they are fundraising as soon as possible.
- Build participation. If yours was a cause worthy of support on the day before the referendum, it will be a cause worthy of support the day after. While your overall level of support might take a hit, a focus on deepening participation will pay dividends in the medium-term. Review your regular giving programme in depth, and develop concrete steps to increase the numbers of donors who give across your donor base.
- Review the international opportunities available to you. A HKD$1M just increased in value from £87k to around £100k. That’s good news for donors: their gift is going further and doing more for the institutions they support. At the same time, while securing international gifts has long been a goal for UK institutions (especially in Higher Education), it’s fair to say that performance has been patchy. Now would be a good time to take a vigorous look at how best to engage with your international supporters: from really focussing on building a good picture of your international prospects through to reviewing the best structures for facilitating gifts (how’s the under-supported “Friends of …” working for you right now?).
- Focus relentlessly on high performance. Review previous performance and plan interventions to deliver improvements; perhaps seek an independent outside view on how your performance stacks up against others (I know a good firm …) and take a good look at how you report on both progress and success towards your goals.
- Engage the boss(es). Just as institutions have no right to exist, the same is true for Development Departments and fundraisers. And now, more than ever, you’ll need Trustees and CEOs/Vice-Chancellors to understand what the likely impact of BrExit will be in the short-term on your income, and the actions you’ll be taking to ensure you’re best placed to weather the storm.
- Keep the team cheerful. No one said fundraising was easy, and certainly the past few years have been challenging for many. At the same time, we know that an unhappy team doesn’t raise money. For the boss, that means you’ll need to be Cheerleader in Chief – for the team, as well as the institution.
That sounds like plenty to be getting on with …
… indeed. Can I have that cup of tea now? I’m trying to keep calm and carry on.