Unrestricted grants: how are they being used?

Since 2020 our main funding programmes for frontline delivery charities have been fully unrestricted. This shift came at a time of significant change and uncertainty in the society we live in and for charities themselves. Our aim was to provide greater stability and security so that charities can adapt, strengthen and build their resilience.

Part of this process involved simplifying the information we ask charities to report back on. We now focus on essential data to help us understand the charities’ experiences and that of the people they support.

One of the things we want to understand is how charities spend their grant so that we can understand trends. 

Overview

By far the most frequent use of unrestricted funds is for salaries. The vast majority – 80% - of our charity partners prioritise salary costs of existing staff members, with 37% using the grant towards the salary costs of new staff members. 

Half (49%) put funds towards premises costs, whilst a third of grants were used for professional services such as legal, insurance, accountancy and governance support; non-salary costs in frontline service provision and organisational infrastructure including computer hardware and IT systems. Reserves were allocated by 18% of our charity partners whilst new and capital projects received the least use.

Breakdown by size

Taking a closer look at charities of different sizes revealed general consistency with a few notable variations. Smaller charities tend to spread out where they allocate their grants – those with an income under £100k allocated to 3-4 areas whilst larger charities mainly focus on 2. For example, the smallest charities are most likely to take on new staff with their unrestricted grants, perhaps because our grant represents a more significant increase in income for the smallest than for larger charities, so they are more likely to use the opportunity to expand services/staff team.

Bigger charities, who are more likely to be stable are also most likely to put grant funding into reserves – however, charities within the income bracket of £100-250k make up the highest proportion. Charities under £500k are investing more consistently in professionalising the work of their organisation by showing higher spending patterns on professional services and organisational infrastructure.

Breakdown by funding theme

The biggest difference is in who is using the grant spending on professional services which ranges from 8% in care leaver charities to 59% in racial equity charities.

There is a similar disparity between spending on reserves which is used by 3% of homelessness charities and 29% of racial equity charities. Charities focusing on care leavers, homelessness and trafficking are most likely to use the funding to recruit new staff members.

Sexual abuse and exploitation charities are more of an outlier as they are least likely to be funding salaries and spend more on professional services and organisational infrastructure.

What now?

In October 2022, we published a report on Lessons for Funder Practice that set out eight lessons from our work in England and Wales between 2018-2022. One of these lessons was on how flexible funding through unrestricted grants, alongside a programme of tailored capacity building, invests in the ability of frontline charities to change, adapt and respond, and thrive beyond the life of our grant.

Internal evaluations suggest that unrestricted financial support plays a critical role in supporting charities in the process of organisational change as the flexibility of an unrestricted grant underpinned the security and stability needed for charities to develop, enabling time and space for Chief Executives’ and leaders’ capacity for strategic thought.

The Foundation’s Regional Managers also report that unrestricted funding has improved trust and openness between Foundation staff and charity partners as it is a clearer commitment to the charity’s future and allows for more candid sharing of learning.

A recent evidence review on restricted and unrestricted funding by IVAR has also highlighted the benefits of unrestricted funding including the following:

• Organisations are able to be more strategic
• An opportunity to devolve power to communities
• Establishment of more trusting relationships
• Promotion of creativity and innovation

We recognise that our unrestricted funding can make the greatest impact on smaller charities which is why the first objective of our new 2022-2026 Building a Better Future strategy – to support small and local charities working with people facing complex issues and barriers - focuses on charities with an income of £25,000-£500,000. We will award unrestricted grants over three years totalling £75,000 so charities have stability and greater freedom to use them as they see best.