New research from the Centre for Market and Public Organisation (CMPO) demonstrates the importance of grant income – in this case grants from the Community Fund (one of the predecessors to the Big Lottery Fund) – to many charities. The grants do not simply substitute for other income, such as donations, but help charities to generate additional income and to thrive. Organisations that received a grant from the Community Fund had higher incomes than charities that applied but were unsuccessful (one-fifth higher on average over a five-year period after getting a grant). This multiplier effect was particularly apparent among medium-sized charities where each £1 of grant income increased charities’ incomes by £1.60 in total.

The Economic and Social Research Council-funded study, led by Professor Sarah Smith, is published in the latest issue of Research in Public Policy. It analysed a sample of more than 5,000 grant applications made by the Community Fund’s Grants for Large Projects programme between 2002 and 2005. The mean award in the sample was £151,295 and the money typically funded specific projects which could be for the continuation of existing work or for completely new activities. The effect of receiving a grant on charities’ incomes was measured by comparing the change in income before and after the committee decision for successful and unsuccessful charities. Focusing on a sub-set of marginal charities that just succeeded in being funded, compared to those that just failed, helped to isolate the effect of the grant on later outcomes.

There are some interesting differences by size of charity. The lottery funding had the biggest positive effect for medium-sized charities. By contrast, there was no overall positive effect on the incomes of major charities (with an existing annual income of £5 million plus). A plausible explanation for this is that the grants are relatively smaller for these larger charities and they can draw on more alternative sources of funding.

Commenting on the research, Professor Smith said: “Our research was designed to find out if grant funding meant a reduction in other sources of funding, such as donations. The findings indicate that grant funding – in this case from the Community Fund – plays a vital role for many charities. It is clear that it doesn’t simply substitute for other sources of income, but in fact ‘crowds-in’ other incomes and really helps some charities to thrive and grow.”