Four ways Brexit is impacting the nonprofit sector in the UK
With the final results of the Brexit Referendum of 52% to leave the EU and 48% to stay, the majority of UK citizens have voted - albeit by a small margin - to leave the EU. A surprise to many, the result has lead to not only the resignation of Prime Minister David Cameron, but created a great deal of turmoil in the country, leading to massive speculation about the future.
News articles abound on the impact of Brexit on the automotive industry, energy and climate change, investments, and technology. But what about philanthropy, or, as it’s commonly known in the UK, the third sector? After all, more than 732,000 people are employed in this industry by an estimated 162,000 organizations that spend approximately £38 billion annually on initiatives to assist people in need.
1. Economics and Funding for Philanthropy
It’s no surprise that the initial reaction of the global markets was panic; financial institutions never cope well with change. Not only did the pound plunge against the US dollar by over 10% to $1.32, a 30-year low, investors “...have started to flock to the safety of US Treasuries.”
This, unfortunately, doesn’t mean a windfall for the US. In the short term, market volatility will impact everything from the dollar to trade to tourism. Should economic uncertainty continue for any length of time, it could slow down growth in the US while both businesses and consumers reconsider current spending habits — including, potentially, donations to nonprofits.
There’s another major funding issue that Brexit has created for the third sector. As part of the EU, the UK has been able to tap into the European Structural and Investment Funds (ESIF). This funding had been key in offsetting the ongoing government cuts to the not-for-profit sector, so its loss in conjunction with a highly devalued pound and loss of investment income will certainly be felt.
How much was the UK getting from the ESIF? The Third Sector published the results of a report produced by the Britain Stronger in Europe Campaign. It stated, “British charities would lose more than £200m in funding each year if the UK votes to leave the European Union... 249 charities received £217m from the EU in 2014, the most recent year for which there are figures.”
This is a bad combination at a time when 70% of charities predict demand for their services will continue to increase. How can organizations whose missions are to support those in need keep up with the societal demand?
2. The Future of Employment and its Impact on the Third Sector
The impact on the workforce is also a hot topic. Companies that have been able to take advantage of the open trade and movement of employees across the EU will become a thing of the past. This is making many large global companies rethink their UK office locations.
An article in The Guardian contained a warning from Jamie Dimon, chief executive of JP Morgan, that “between 1,000 to 4,000 UK jobs at the bank could move overseas.” Morgan Stanley is also apparently thinking of moving UK jobs to Europe.
If those jobs go, leaving the people working in them unemployed, what happens to their taxable income the government uses to fund initiatives? What happens to any donations they would normally make directly to charitable organizations? What if they themselves need services?
This leads to a “double whammy” for the third sector, says Paul Palmer, professor of voluntary sector management and associate dean for ethics, sustainability and engagement at Cass Business School. Combine the drop in donations with continued government cuts and the impact is twofold.
3. Charitable Services after Brexit
If funding starts to disappear, what happens to the people that rely on the services these organizations provide?
The Third Sector spoke with Danny Corry, Chief Executive of New Philanthropy Capital, who said, "The Brexit vote means we are entering a period of uncertainty for charities. The government will now be tied up for months negotiating what happens next, sucking time and energy away from making sure charities are in the best position to make a social impact.”
4. University Research Grants Already Feeling the Impact
One victim has already fallen: university research grants. Forbes reported some UK universities have already been told future funding applications are likely to be put on hold. That’s 19,000 jobs generating £1.86 billion for the UK economy indefinitely delayed.
So what’s next?
Remember, until the UK invokes Article 50, the separation is not “official.” Article 50 comes from the Lisbon Treaty that each member of the EU signed in 2007. This is the formal declaration by the Prime Minister that the UK is leaving and triggers a two-year countdown where both parties negotiate the separation agreement between the UK and the EU.
In the meantime, however, uncertainty rules.
Leaders of the third sector have requested an immediate summit to discuss the possible recovery of revenue to be lost in charitable sector funding, but, to date, no meeting has been set.
It’s a bit early to say what the ultimate outcome will be. There’s wide range of opinions regarding the legality of the vote and whether the vote alone is enough to invoke Article 50. It’s entirely possible that, should Brexit go to parliament for further discussion, the outcome of the referendum may be considered too close to be considered official. There are also legal concerns that Article 50 cannot be called into play until there has been an Act of Parliament, meaning a separate vote by MPs.
The longer uncertainty stands, the more optimistic the talk becomes that the UK may not leave the EU after all. In that case, this last couple of weeks could simply be considered a valuable learning opportunity and potential warning to any other country considering such a move. Still, there’s a strong belief it will come to pass, so it’s imperative the third sector put as much pressure on the government as possible to keep their issues top of mind.