Mergers ‘may be only way’ for Scottish charities to survive

Mergers may be the only way to secure the survival of some Scottish charities plunged into a cash crisis caused by the coronavirus pandemic, an expert has claimed.

Alastair Keatinge, partner and head of charities at law firm Lindsays, has warned the Scottish Government will need to be “bold” and play a key role in triggering reform to shore-up the longer term health of the nation’s third sector.

Many charities are facing restructuring after lockdown forced a collapse in income with the cancellation of major fundraising events and charity shop closures. Although charity shops are beginning to reopen following the easing of lockdown measures, it is understood that some organisations face a potential volunteer shortage because many of its volunteers are older and are still shielding in their homes.

Recent research by the Office of the Scottish Charity Regulator (OSCR) found that one in five charities across the country is at risk of collapse in the next 12 months under the financial impact of Covid-19.

Some Scottish charities may only be able to survive if they merge, an expert has claimed. Picture: Andy Buchanan/PA

Mr Keatinge said: “Given the scale of the challenges that many charities face, it’s inevitable that we will see some mergers, simply to secure the efficiencies needed.

“I believe the Scottish Government, as a major source of funding for many third-sector organisations, has an important part to play.

“It clearly cannot help every charity in Scotland. But it may be that the Government will need to be bold and tell a lot of charities that they must merge if they are to maintain funding.

“It’s quite radical to suggest that it may be no longer viable to help keep so many individual charities going, but this may be necessary to put the public money available to the most effective use.”

There are 24,000 charities in the country, according to Scottish Government statistics.

These range from small local charities to large international organisations and include community groups, religious charities, schools, universities, grant-giving groups and major care providers.

Mr Keatinge said: “Most mergers do not happen through choice. They happen because circumstances dictate it. My advice to those organisations who believe this may be the avenue 
they have to take would be to be on the front foot and be the party which leads that process.

“A merger or joint working arrangement can often be the best way to support service users and use resources efficiently ... this is a sector which is not blind to the need for innovation.”

The Third Sector Interface Network published a report last week, warning the financial situation of social enterprises as a consequence of Covid-19 was “perilous”.

Michelle Cook, head of the Chartered Institute of Fundraising Scotland, said: “From our own survey, we know that on average, respondents reported that they were expecting a reduction of 24 per cent to their total income for the year, which would mean a £12.4 billion loss of income if the average was applied to the UK-wide sector as a whole.”