Why the Third Sector Has Been Hit Harder by Recent Economic Changes 

Why the Third Sector Has Been Hit Harder by Recent Economic Changes 

Structural Vulnerabilities: The third sector comprises a high proportion of micro and small organisations that typically operate with very tight margins and minimal reserves. Unlike larger organisations, these smaller bodies lack the financial buffers to absorb shocks, making them especially susceptible when funding dips or costs rise unexpectedly. 

Revenue Dependency Patterns: Many third‐sector organisations rely heavily on a mix of government grants, contract income, and public donations. In downturns or amid austerity measures, cuts to public spending and tighter household budgets lead to sharp falls in both grants and individual giving. 

• During the pandemic, 83 percent of charities expected their income to decline over the following 12 months, and 69 percent predicted it would take more than a year to recover pre-crisis levels. 

Rising Operating Costs: Inflation and supply-chain pressures have driven up costs for utilities, rent, insurance, and essential supplies. Third-sector bodies—bound by mission and unable to raise fees freely—cannot simply pass these costs on to “customers,” leaving them with eroded real incomes and higher overheads. 

Workforce and Volunteer Challenges: Maintaining paid and unpaid staff has become more difficult: 

• 43 percent of third-sector employers report recruitment struggles, while one in five find it harder to retain existing staff. 

• Regular volunteers, who collectively contribute over 312 million hours annually, face their own cost-of-living pressures, leading to decreased availability and burnout risk. 

Increased Service Demand: Economic hardship among households directly boosts demand for third-sector services—food banks, debt advice, mental-health support, and more—just as these organisations’ capacity to deliver is squeezed. This mismatch intensifies strain on both financial and human resources. 

Conclusion 

The combination of thin financial cushions, dependence on volatile public and charitable income, rising costs that cannot be recouped, workforce shortages, and simultaneous spikes in service demand has created a perfect storm. As a result, I would argue that the third sector has weathered recent economic changes more harshly than most other parts of the economy!