Two new reports paint a grim picture of the state of charitable funding in the UK and show charities are grappling with a‘toxic mix’ of  funding pressures; lost income, rising costs and growing need.

A report compiled the Association of Chief Executives of Voluntary Organisations (Acevo), and allegedly leaked by the Labour Party, says the charity sector is facing local and national government funding cuts of up to £5.5bn – a claim refuted by government.

Acevo, that has helped to run the £100m transition fund set up by the government to aid charities facing financial difficulties, found applicants to the fund faced cuts of more than £520m in the current financial year. It estimated the whole UK charity sector faced cuts of between £1 bn at best and £5.5 bn in the worst case scenario.

However new figures from the National Council for Voluntary Organisations  (NCVO) estimates that by the end of the spending review period 2015/16, the voluntary sector is forecast to lose £1.2 bn in government income each year, a cumulative total of £3.3 bn.

Acevo figures show charities face losing 45% of their total income on average.

Charities in the north-west and north-east of England are over-represented in the group of organisations which have asked for help from the fund. The report claims 450 organisations in the 20 most deprived areas have lost £142.5m compared with a £3.6m loss for 22 organisations in the 20 least deprived areas.

But the government insists the Acevo report is misleading as it focuses only on organisations that are applying to the transition fund, which was set up to help groups that will be hit hardest by cuts. Officials said 78% of the sector does not receive any state funding at all.

A Cabinet Office spokesperson said: "Our analysis shows that some applicants over-stated their expected reductions and therefore we do not consider these figures reliable. While the majority of charities receive no government money at all, reforms announced in last year's Budget are expected to provide £600m to the sector over the lifetime of this Parliament.

"We recognise this is a difficult time for charities, voluntary organisations and social enterprises and that's why we set up the Transition Fund to help them manage the transition to a tighter funding environment and take advantage of future opportunities presented by the Big Society."

But shadow charities minister Gareth Thomas said the report was evidence charities were taking a big hit.

He said: "Charities and community groups across the country have taken a huge and completely disproportionate hit in funding just when demands for their help are rising fast. David Cameron's claim that in his Big Society we're all in it together was never credible, but this report confirms that ministers were being given independent evidence showing that charities were going to be hit very hard by funding cuts, with the poorest and most deprived areas being hit hardest.

"Charities are more dependent on the public than ever before, and we need to cultivate a culture of giving similar to that which exists in the States to stand a chance of sustaining the sector's success,” said Thomas.

The NCVO figures, released today (Monday March 5^th) show that charities were hit by £2.3 bn in rising costs purely as a result of inflation between 2008 and 2010. Speaking at the conference later today, Sir Stuart Etherington, will also highlight the dramatic drop in the voluntary sector workforce, losing over 70,000 staff in the past year.

The figures also show that charities spent the years since the start of the recession 'swimming against the tide' to meet increased demand from users and beneficiaries. During the height of the recession in 2010, voluntary organisations spent 99% of their income (£36.3 bn out of £36.7 bn) in order to keep pace with rising costs and expand their services to cope with demand; this was the smallest gap between income in spending in 10 years. Many organisations dipped into their reserves to stay afloat, and a higher proportion of funding was channelled directly to frontline charitable activity.

Sir Stuart will also suggest that the pendulum has swung too far from grants to contracts.  The NCVO 2012 Civil Society Almanac shows that income from statutory grants has declined steadily from a peak of £5.3 bn in real terms in 2003/4 to £3 bn in 2009/10.  At the same time, the decade saw a significant increase in contract income as voluntary organisations' role in public service delivery expanded, from £4.3 bn in 2000/1 to £10.9 bn in 2009/10.

Speaking ahead of the conference, Sir Stuart said: “This new research shows how charities have had to spend every last penny just to keep their heads above water. The charity sector has already taken a significant hit and we must act quickly to ensure that communities are not deprived of vital services. “

Other findings from the 2012 NCVO Civil Society Almanac show:

• Giving down, buying up: charitable giving fell by £383m in the recession, but sales to the public increased by £905m (this would cover raffle tickets, charity shops and membership fees).
• Peak funding: in 2007/08, £38 bn was the voluntary sector's highest recorded income in current prices.
• Spending is up: a real increase of £1.1 bn over the 2 years 2008-2010. In the face of the recession, charities expanded their services in order to meet increased demand.
• Grants squeeze: during the recession public sector grants fell by almost £500m.
• More service delivery: The sector gets £13.9bn from government, 79% is contracts for services.
• Reserves: free reserves were £42.2 bn in 2009/10: in real terms, £4.1 bn lower than at the beginning of the decade.
• At a glance: in 2010 there were 163,763 voluntary organisations in the UK, with an income of £36.7 bn, employing 765,000 staff. 
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Another report aiming to find out the impact of government cuts and new commissioning rules on charities is currently being undertaken by  New Philanthropy Capital (NPC). It will survey  the top 750 charities. It will publish a report of its findings in late April/early May, including examples and case studies.