Whether it’s developing skills and training to enter the workforce, investing in buildings and equipment, or providing services to fill gaps left by the public sector, the voluntary sector plays a significant part in the UK economy. However, measurement of its economic contribution is inherently complex, meaning the role it plays is often undervalued.
Currently, there is no adequate, recognised definition of the contribution to economic activity across the sector, which leads to wide variation in valuations. Core National Accounts can be used to estimate the voluntary sector, through the Non-Profit Institutions Serving Households (NPISH) sector.
However, the UK voluntary sector is much larger than the organisations that are included within NPISH, given the specific definition of this sector. Voluntary organisations are spread across sectors and industries in the National Accounts, so the use of NPISH results in significant undervaluation of the sector’s economic contribution.
A new ESCoE project in collaboration with the Fraser of Allander Institute at the University of Strathclyde and VCSE Data and Insights National Observatory at Nottingham Trent University aims to explore the problems with measuring the voluntary sector. It will answer questions surrounding NPISH and the National Accounts and improve measurement of the sector within the UK National Accounts framework. This project builds on previous work conducted by the Institute on Scottish charities and links to other ESCoE work on National Accounts and beyond GDP.
Why does this matter?
The inability to measure the voluntary sector’s contribution to the UK economy limits its comparison to the non-voluntary sector, meaning that it may be undervalued or overlooked. Accurate measurement would allow for better recognition of the sector’s economic contribution. This could encourage further volunteering and involvement and investment in the sector, along with better use and allocation of resources. Unleashing the potential of the voluntary sector by measuring it more accurately could also allow its inclusion in economic growth strategies to improve both regional and national economic performance.
What are the possible solutions?
Significant research has been conducted into how the voluntary sector can be measured more accurately, and what data is required to do so. Various methods have been identified to produce a variety of estimates of the size and contributions of the sector. These methods have used different definitions of the sector.
Extensive research has been conducted into the use of satellite accounts, as an extension to National Accounts, to measure both the size and impact of the voluntary sector. So while the National Accounts provide a single overview of all economic activity in a country through collating and presenting the output, expenditure, and income activities of a country’s economic actors, satellite accounts provide a framework that is linked to the National Accounts, but allows for a more detailed focus on a certain field or aspect of the economy.[1] 2021 research shows that the not-for-profit sector is up to five times larger when measured using a satellite account compared to what was measured in NPISH and National Accounts.[2]
A key consideration for a satellite account is what types of organisations should be included in the scope. The UN’s Handbook provides a definition for identifying civil society organisations. However, this is narrower than the UK definition.[3] UK “civil society” also includes social or community activities within charities and voluntary groups; some social enterprises that do distribute some profits, such as Community Interest Companies; and mutual societies incorporated in structures where it is not obvious that they are restricted in profit sharing.
Assessing feasibility
2023 research from French and Davies also explored the creation of a UK civil society satellite account. Stakeholders highlighted that the existence of a satellite account is as important as what it includes to provide validity for the sector. They recommend that an initial satellite account should start with the simplest definitions and be improved with further additions over time. It should take a modular approach, allowing for different definitions of the sector, and should allow for comparisons with other sectors in the economy.[4]
In 2023, Pro Bono Economics conducted an in-depth feasibility study into satellite accounts and developed a preliminary framework for its creation. This study is currently unpublished. Their recommended short-term approach uses the legal status on the Inter-Departmental Business Register (IDBR) and organisation type in the Labour Force Survey (LFS) to identify organisations that are not included in NPISH but are considered to be within civil society. They suggest a modular approach where data can be broken down and compared by SIC (Standard Industrial Classification) codes. These SIC codes can be matched to ICNPO (International Classification of Non-Profit Organisation) codes. They also advise the use of shadow wages of paid employees instead of volunteering. This approach would still likely produce an underestimation of the sector but would be an initial step in facilitating the creation of civil society aggregates of economic variables including turnover, GVA and employment.
They also propose an ‘intermediate approach’ to capture organisations within civil society that have been missed. They provide details on how to identify these organisations, where to access relevant data and how to select what data to include. However, they acknowledge that this ‘intermediate’ approach is still limited in measuring all aspects of the sector and highlight the need for further research on volunteering, social enterprises and growth measurements.
The ONS (Office for National Statistics) and NCVO (National Council for Voluntary Organisations) developed a method in the early 2000’s to calculate the sector’s GVA (Gross Value Added), which is still used by the NCVO today.[5] GVA is a productivity metric that measures the contribution of a corporate subsidiary, company, or municipality to an economy. The method calculates GVA as: GVA = Staff costs + Expenditure on goods and services - Income from sales of goods and services. However, this method may significantly underestimate the voluntary sector’s contribution to the economy because it fails to adequately consider: unpaid volunteers; informal volunteers; spillover fiscal benefits; and the wider economic spillovers from receiving services.[6]
On the other hand, SCVO (Scottish Council for Voluntary Organisations) use a financial accounts analysis model for Scottish charities to better understand the third sector in Scotland.[7] They investigated the financial accounts of Scottish charities using data from the OSCR (Office of the Scottish Charity Regulator), Scottish Charities Register, the Scottish Housing Regulator and Credit Union statistics. The SCVO also have a Scottish Third Sector Tracker that collects panel data through surveying a sample of third sector organisations in Scotland every four months.[8] This tracker provides an insight into key trends and developments within the sector, including current organisational challenges; demand for their services; paid staff and volunteers; and financial health.
The Royal Society of Edinburgh also highlight the potential use of the Social Enterprise Scotland census to provide a key insight into the number of social enterprises in Scotland and economic indicators such as employment and GVA. [9] Again, one of the challenges with considering the inclusion of social enterprises is the lack of standard definitions of this type of organisation.
What issues remain?
Despite these significant recent advances, issues still remain in measuring the voluntary sector and capturing its economic contributions.
The first issue is the lack of a clear, adequate definition that is recognised and adopted across the sector. Until this is agreed, measurement methodologies and estimates will continue to differ.
NPISH in the National Accounts is also an inadequate measure of the voluntary sector. NPISH is defined as economic units that supply services on a non-commercial basis. To be considered, NPISH institutions must: provide goods and services either for free or below market prices; mainly derive their income from grants and donations; and not be controlled by the government. Therefore, NPISH does not capture all voluntary sector organisations. As a result, using the value of the NPISH sector significantly underestimates the economic contribution of the voluntary sector. Additionally, the methodology used by the ONS to create these estimates in unclear and not publicly documented, so it cannot be critiqued or replicated in devolved countries’ national accounts.
Finally, while the Pro Bono Economics report has made great advances in the technicalities of constructing a satellite account, several questions still remain to ensure the entire sector is accurately measured. This includes a need for further understanding on how the IDBR legal status flag is constructed and how to capture organisations not included on the IDBR (including many small organisations). Additional considerations include how to capture informal volunteering, data collection on sources of funding for organisations, how to identify social enterprises and how to prevent double counting across multiple data records.
A new research project
Our project aims to answer some of these questions surrounding NPISH and the National Accounts. It will focus on three elements:
We will formally document the full methodology used to create the NPISH statistics in the National Accounts. NPISH includes charities, higher education and further education, political parties, and trade unions, and we will highlight what data is used for each of these elements. In particular, we will focus on documenting the data process for charities, at both the NCVO level (who provide charity data to the ONS), and how the ONS then use this data. We will then review these processes and outline recommendations for improvements on how to make NPISH more representative of charities within England and Wales and allow for replication in both regional and devolved National Accounts.
We plan to interview key practitioners in the sector about their understanding of the role of data in the development of national accounts. These will include national infrastructure organisations involved in producing the data for the accounts, organisations that might use the accounts for their work understanding and campaigning about the sector, and government officials. We will identify what role they think National Accounts plays in their work and how they think it shapes understanding of the voluntary sector within society.
Following on from our interviews with providers, we will recommend improvements and investments in the data infrastructure for the voluntary sector, ensuring regulators, voluntary sector representative organisations, and statistical producers are focussed on supporting the production of appropriate and accurate statistics about the sector.
We will investigate the IDBR flag recommendation underpinning the PBE recommendations for a satellite account. A better understanding of this flag will identify if it would be possible to use this flag to describe voluntary organisations across the National Accounts, including those currently considered outside the NPISH sector. We will also analyse the data collected for charities in Scotland and Northern Ireland to identify how this can be included in UK NPISH calculations in addition to NCVO data. Finally, we will examine the sectors charities self-report into, and design a mapping methodology between different industry classification codes This will ensure greater consistency in the classifications used across charity registers.
As part of this final research stage, this ESCoE research project will support an economic student summer placement through the Economics Futures programme, hosted at the Fraser of Allander Institute. This placement will focus on highlighting the differences in charity registers held across the UK. We will then use the data held in the charity registers in Scotland and Northern Ireland as a proxy to estimate the number of charities that are under the minimum registration requirements in England and Wales, so are not captured in their register. This same methodology will be applied to identify charities missing from UK business register data, to inform recommendations on expanding the data used for measuring the charities in NPISH.
Overall, this research will provide a review of the current National Accounts practise. Our recommendations have the potential to improve the National Accounts construction methodology and allow for more accurate measurement of NPISH in both UK, regional and devolved country’s National Accounts. This will complement the building of a civil society satellite account, if the underpinning National Accounts are fundamentally more robust.
Ciara is a Knowledge Exchange Associate at the Fraser of Allander Institute, based in the Department of Economics at the University of Strathclyde. If you have any further queries about the feasibility study, please contact danya.long@dcms.gov.uk.
ESCoE blogs are published to further debate. Any views expressed are solely those of the author(s) and so cannot be taken to represent those of the ESCoE, its partner institutions or the Office for National Statistics.
[1] French, T. and Davies, L. (2023) Civil Society Satellite Account: The use cases and what a first version might include. New Philanthropy Capital. Available at: https://npproduction.wpenginepowered.com/wp-content/uploads/2023/03/Civil-Society-Satellite-Account-Report-pdf.pdf.
[2] Kenley, A. (2021) Taking account: The case for establishing a UK social economy satellite account. Pro Bono Economics. Available at: https://www.probonoeconomics.com/Handlers/Download.ashx?IDMF=5ef83729-6d5d-4f6c-9a80-5b6d5b5648a6.
[3] UN (2018) Satellite Account on Non-profit and Related Institutions and Volunteer Work. UN Statistics Divison. Available at: https://unstats.un.org/unsd/nationalaccount/docs/UN_TSE_HB_FNL_web.pdf.
[4] French, T. and Davies, L. (2023) Civil Society Satellite Account: The use cases and what a first version might include. New Philanthropy Capital. Available at: https://npproduction.wpenginepowered.com/wp-content/uploads/2023/03/Civil-Society-Satellite-Account-Report-pdf.pdf.
[5] Tabassum, N. (2023) What do voluntary organisations contribute to the economy?, NCVO. Available at: https://www.ncvo.org.uk/news-and-insights/news-index/uk-civil-society-almanac-2023/impact/ (Accessed: 23 February 2024).
[6] Franklin, J., Graham, M. and Whittaker, M. (2020) Undervalued and overlooked? The need for better understanding civil society’s contribution to the UK economy. Pro Bono Economics. Available at: https://www.probonoeconomics.com/Handlers/Download.ashx?IDMF=d1fb4adb-1789-4c62-a897-097f2363a89a.
[7] Mackinnon, I. (2022) SCVO Scottish voluntary sector statistics: methodology. SCVO. Available at: https://storage.googleapis.com/scvo-documents-evidence/0693z00000UTcxBAAT-Methodology-Scottish%20third%20sector%20statistics%202022.pdf.
[8] SCVO (2023) Scottish Third Sector Tracker – Wave Seven Report. SCVO. Available at: https://files.scvo.scot/2024/02/Third-Sector-Tracker-W7.pdf.
[9] RSE (2023) The economic contribution of the third sector in Scotland. The Royal Society of Edinburgh. Available at: https://rse.org.uk/expert-advice/advice-paper/the-economic-contribution-of-the-third-sector-in-scotland/ (Accessed: 15 January 2024).
