Giving pains: The cost of grant-making

Charities across the UK play a vital role in delivering services, connecting communities and driving social change. Throughout the pandemic and the current cost of living crisis, charities have been at the forefront of efforts to support individuals, families and wider communities. However, the sector is also under immense financial pressure. Demand for services has risen substantially, with baby banks, advice organisations and foodbanks facing record levels of need. At the same time, the pandemic and the squeeze on living standards has reduced charity income, while inflation drives up costs and means that grants and donations are worth less in real terms. In the midst of this perfect storm, it is more important than ever that the sector makes the best possible use of its resources.  New research suggests that the inefficiencies currently built into many funding application processes are undermining this goal.

The social sector relies on philanthropic investment to carry out its crucial work, with trusts and foundations providing billions of pounds in grants to charities each year. There are long-standing concerns about the costs created by the application processes required to access this funding. New research by Giving Evidence for the Law Family Commission on Civil Society finds that the total cost of these application processes comes to about £900 million per year. Other estimates range between £442 million and £1.1 billion per year.

The overall cost is increased by high numbers of ineligible and unsuccessful applications, in addition to unnecessarily laborious processes. Small and medium charities face particularly high costs to access funding, having to devote more than a third of their resources to applying for charitable grants on average.

There is little evidence that these application processes create value in terms of useful learning for either charities or funders, or that they are well designed to maximise the impact of investment.

Four factors drive the sub-optimal design of application processes:

  • Lack of design: funders do not tend to purposively design their processes; rather they evolve organically over time.
  • Lack of information: neither funders nor charities consistently track the costs of application processes or the gains that could be made by improving them.
  • Lack of incentive: there is little external pressure or incentive for funders to improve their approaches, and charities are more strongly motivated to build relationships with funders than to share their views or data about application processes.
  • Lack of skills: many funders do not employ staff with service design or digital skills. They are often focused more on holding down their staff and other organisational costs than on developing capabilities which might improve the efficiency or effectiveness of their grant-giving practices.

This study suggests that many funders should be more active in considering the costs created by their application processes and redesign them to reduce ineligible and unsuccessful applications and streamline processes. Simple improvements can help them achieve this, such as publishing funding priorities and criteria, providing an eligibility checker and ensuring application forms make all questions visible upfront, avoid repetition and are able to be saved during the process.

More funders should also take much bolder steps, creating funder collaborations, using joint application forms and striving to reduce the number of ineligible and unsuccessful applications they receive. Interventions such as matching platforms may also help but need to be designed carefully to avoid inadvertently increasing overall system costs. For example, in one modelled scenario where a matching platform draws in many new applicants to a funding source they were previously unaware of, the proportion of funding that ends up being used to deliver charitable activities falls from 80% without the matching platform, to 50% with it.

There are funders who have been leading the way in making both incremental improvements and more fundamental changes to their processes. They have demonstrated the feasibility of doing so and the positive impacts that flow to all involved. It is clear, however, that this kind of action is not yet taking place at scale across the funding landscape.

Charities and funders exist to achieve common goals, with a shared interest in ensuring that resources within the sector are used to achieve the maximum possible impact.  The current system embeds inefficiencies which should be highly concerning for philanthropists, donors and policymakers, as well as for charities and volunteers. Forthcoming research from the Commission will examine potential levers that could be used to drive a step change in funding approaches across the sector and make recommendations for action from policymakers and the sector itself.