Nearly half of Scottish charities spent more money than they generated in 2023, research has found.

The State of the Sector report from the Scottish Council for Voluntary Organisations has found that in 2023, 45 per cent of charities in Scotland spent more funds than they were able to generate.

The report analyses data from the SCVO’s third sector tracker, which regularly surveys hundreds of representatives from voluntary organisations across the country. 

During the most recent phase of the tracker’s research, carried out between September and October 2024, the umbrella body received responses from more than 370 organisations.

The report found that the number of charities that reported they were struggling financially has increased, rising from six in 10 in 2022 to nearly eight in 10 in 2023.

While the value of assets managed by the sector overall has increased steadily every decade, rising costs have recently caused a £1bn fall in assets, the report says.

Cash reserves fell overall from £5.2bn in 2021 to just £3.7bn in 2023, the report found. Large charities with an annual turnover of more than £1m saw their average funds fall from £17m to just £12m in this period.

Medium and large charities were also the “least financially robust”, the report says, adding that half of these organisations have less than six months of expenditure in their reserves. 

Nearly one in three large charities have less than three months’ expenditure in their reserves, the report says.

One-third of charities, of all sizes, are using their reserves to make up for shortfalls, the report says, adding that two in five of these organisations feel their current usage of reserves is unsustainable.

The report found that public sector funding makes up 40 per cent of the sector’s overall income, but says there was a slight fall in the value of public sector funding in 2023 now that the distribution of emergency Covid-19 funds and furlough money has ended.

“Fears of a sudden substantial withdrawal of essential government financial support have, happily, not been realised, but while public sector funding has stayed at 2021 levels in cash terms, its real-term value has fallen for both grants and contracts,” the report says.

Many charities reported boosting their investment in fundraising activities, the report says, with fundraising costs having risen by one-third between 2021 and 2023 – from £415m to £558m.

But the report found that the majority of organisations were confident about their survival, with 87 per cent of respondents agreeing with this statement.

Ilse Mackinnon, SCVO research officer, said: “It’s been sobering looking at charities’ accounts this year and seeing just how tight finances are for many.

“It’s great that many income streams have recovered but we also saw essentials like energy bills, rents and staff costs shoot up, sometimes to double what they were the previous year.  

“We can see the impact of that on reserves, with many charities struggling to meet costs and keep enough cash back for emergencies.”