J. R. Statist. Soc.

A (2013)
176, Part 3, pp. 761776

Are big charities becoming more dominant?:

cross-sectional and longitudinal perspectives
Peter Backus
University of Southampton, UK, and Institut dEconoma de Barcelona, Spain

and David Clifford

University of Southampton, UK
[Received July 2010. Final revision April 2012]
Summary. There is a debate surrounding the implications of big charities increasing dominance
of total charitable income, but no empirical work which assesses whether indeed big charities
are becoming increasingly dominant. We provide this assessment from both cross-sectional
and longitudinal perspectives, using a panel data set with information on charities income in
England and Wales between 1997 and 2008. From a cross-sectional perspective, examining
trends in income concentration ratios, there is no evidence that the biggest charities account
for a growing share of total charity income over the period of analysis. However, the longitudinal
perspective, which relates income growth over the period to initial size, shows that initially large
charities have significantly higher median relative growth rates than the initially small. Substantively, these results are relevant to government plans for the Big Society, which rest in part on
the ability of smaller, community-based charities as well as the bigger voluntary bodies to thrive
and grow. Methodologically, for studies which examine trends in the distribution of income, these
results illustrate the additional insights that are provided by the longitudinal perspective which
cannot be inferred from repeated cross-sectional information.
Keywords: Charity; Cross-sectional perspective; Income inequality; Industrial concentration;
Local quantile regression; Longitudinal perspective

1.

Introduction
There now seems to be an established trend towards the concentration of income in the very richest
charities . . . with a small minority of large charities becoming ever more dominant (Duncan-Smith,
2005).

Charitable organizations have become a signicant economic force over the past few decades.
The increase in total income of charities based in England and Wales is well documented (e.g.
Kane et al. (2009) and Atkinson et al. (2012)). However, there is also particular interest in perceived changes in the distribution of that income, and how these changes affect the competitive
environment in which charities operate. This is reected in a debate surrounding the apparent
increase in the disparity in income between large and small charities (Plummer, 2008; Benjamin,
2009).
There is disagreement about the implications of this apparent trend. On the one hand,
Duncan-Smith (2005) argued that, since big charities are characterised by a uniformity of
thought and action, their increasing dominance marginalizes innovative methods that are
Address for correspondence: David Clifford, Third Sector Research Centre, University of Southampton, Higheld, Southampton, SO17 1BJ, UK.
E-mail: d.clifford@tsrc.ac.uk
2012 Royal Statistical Society

09641998/13/176761

762

P. Backus and D. Clifford

adopted by smaller, unorthodox and exible groups which can respond to local need. Others question the premise of this argument, point out that big charities are good at what they do
and regard the whole focus on charity size and the dominance of big charities (Tescoisation of
the charitable sector) as unhelpful (Bubb, 2008).
Also, since a shift in the distribution of resources in the sector may be indicative of changes
in the competitive environment in which charities operate, this may have implications for the
provision of public goods by charities and the efciency with which they are provided (the share
of a charitys revenue that is expended on providing these goods). Although it is well understood
that competition leads to increases in rms efciency and welfare (see, for example, Mas-Colell
et al. (1995), pages 307341), the economic consequences of increased competition between
charities are less clear. Some economists argue that increased competition between charities will
lead to a decrease in the private (charitable) provision of public goods (Feigenbaum, 1987; Cha
and Neilsen, 2001; Aldashev and Verdier, 2010), and others argue the opposite (Bilodeau and
Slivinski, 1997; Castenada et al., 2008).
These issues are particularly relevant within the context of the current governments plans
for The Big Society (Cabinet Ofce, 2010), which places importance on the role of charities
and other neighbourhood groups to take action at a local level (Coote, 2010). These plans are
therefore predicated on the ability of smaller, community-based charities as well as the already
larger, well-established charities to thrive and grow. Despite the clear substantive interest, and
the debate about the implications of the apparent trend, thus far there has been no research
assessing the substantive nature of recent trendsare big charities indeed becoming increasingly dominant? This paper, for the rst time, presents empirical information to answer this
question.
2.

Context

2.1. Substantive context: what are the advantages of size?

There are two main reasons why we might expect big charities to have become more dominant. First, in terms of statutory income, local authorities became purchasers of services from
independent private or voluntary organizations, rather than directly providing social services
themselves, under the 1990 National Health and Community Care Act. In thinking about the
nature of this purchaserprovider relationship, it is helpful to keep in mind both the continuum and the trend (see Lewis (1993)). There is a spectrum between completely unconditional
grants on the one hand, and more formal relationships where money is explicitly linked to the
provision of certain services on the otherbut, particularly from the mid-1990s, statutory funding has been increasingly delivered under contract rather than through unconditional grants.
Although these changes are particularly relevant for voluntary organizations working in the social services eld, they are consistent with gures showing a marked increase in contract-based
statutory income from 2001 to 2007 for the charitable sector as a whole (Kane et al., 2009).
As the changes were taking place, commentators predicted that, although the increased
income from statutory sources would increase total aggregate income for these organizations
as a whole, larger organizations would be better placed to benet than those that were smaller.
Smaller organizations, whose main activity may have been advocacy rather than service delivery,
might not have either the desire, capacity or skills to enter contracts (Lewis (1993), pages
176 and 186187, and Charlesworth et al. (1996), pages 7172). Therefore, the shift towards the
formalization of statutory income was predicted to encourage the growth of larger voluntary
organisations at the expense of the smaller (Waine (1992), pages 7374).
Second, in terms of private (donated) income, larger charities may benet from the ability

Are Big Charities becoming More Dominant?

763

to invest in the infrastructure and costs that are associated with fund-raising, including the
employment of dedicated marketing professionals and the advice of fund-raising consultants
(Leat, 1995). They may be more able to make use of a range of fund-raising strategies, including
capital-intensive media and direct mailing campaigns, to maximize their exposure. Overall, they
may be more able to devote resources to the three key tasks of identication, attraction and retention of donors. In turn, as with the shift towards contract-based statutory funding, this might
be expected to encourage the growth of larger, rather than smaller, voluntary organizations.
2.2. Methodological context: cross-sectional and longitudinal perspectives
We approach the general question are big charities becoming more dominant? from two different perspectives: cross-sectional and longitudinal. Both perspectives are important, as demonstrated by recent research on industrial concentration and on individual income inequality.
The cross-sectional perspective considers the marginal distribution of income among charities
over time. Here the specic question is there a tendency for the biggest charities, as dened
in a particular year, to account for a growing share of total charity income over the period of
analysis?. This has been the conventional approach in the industrial concentration literature to
analyse trends in income shares at the top of the rm income distribution. However, it has been
recognized for a considerable time that these static indices are not sufcient for an evaluation
of the strength of competition in an industry (see Baldwin and Caves (1998)). For example,
Curry and George (1983), page 213, noted that
if the identity of the dominant rms were to change over time, then even persistently high levels of
concentration would not imply the absence of competitive forces.

The longitudinal perspective denes charity size at the beginning of the period of analysis
and tracks individual charities subsequent rates of growth. Here, the specic question relates
to differential growth: have the initially big charities grown more than the initially small?.
To answer this question, we use an approach developed in the literature on individual income
inequality. Income mobility proles (Van Kerm, 2009) track the change in income of each
individual and require information on the joint distribution of income at t1 and t2 . This provides additional insights into the cross-sectional picture (Jenkins and Van Kerm, 2008). Indeed,
adapting Jenkins and Van Kerms (2006) explanations to the context of charity size, it would be
possible both (from a cross-sectional perspective, in terms of income share) for small charities
to have fared relatively badly compared with big charities and (from a longitudinal perspective,
which follows organizations through time) for income growth to be concentrated among the
initially small. The key to resolving this apparent paradox is recognizing that membership of
groups like the small and big can change over time (Jenkins and Van Kerm (2008), page
532), whereas a purely cross-sectional perspective ignores this reshufing of organizations in
the income pecking order. Thus trends in cross-sectional measures like the concentration ratio
reect two underlying longitudinal componentsthe pattern of mean income growth according
to initial size, and the extent of reranking in the income distribution.
Income mobility proles were designed for the study of individual incomes, where the unit
of analysis is fairly stable over time. The individual mobility literature does not address what
is a major concern for us: the establishment and dissolution of charities. This turnover of
organizations may have important implications for how the cross-sectional and longitudinal
results are interpreted. Therefore we extend the longitudinal perspective: not only do we
consider the relationship between initial size and subsequent growth, but also we explore the
relationship between initial size and charity dissolution, and we examine the establishment of
new charities.

764

3.

P. Backus and D. Clifford

Data

We have built a panel data set containing the headline income and expenditure of individual
charities in England and Wales from 1997 to 2008. This provides a valuable opportunity to
present not only the cross-sectional perspective, in terms of trends in income concentration, but
also longitudinal perspectives, including the relationship between growth and initial size. All
data are originally from annual returns or annual updates completed by charities for the Charity Commission, which is a non-Ministerial governmental body charged with the registration
and regulation of charities. A denition of charitable status is provided in appendix A in the
on-line supporting information for this paper. We convert all income gures to 2009 prices, so
all growth rates are real.
The data have been collected for regulatory, rather than research, purposesso unsurprisingly
required some preparation before use. This is described in on-line appendix B. The main focus of
the paper is to present trends for the population of charities as a whole. However, the trends for
the sector as a whole are likely to conate different trends in different vertical elds of charitable
activity (Kendall, 2003). Therefore, we also present trends for social service organizations specically, since the shift from grant-based to contract-based public fundingthought to favour
bigger organizationsis particularly relevant for these organizations. We use the international
classication of non-prot organizations, which classies non-prot organizations into groups
based on their primary economic activity, to identify social service organizations (Salamon and
Anheier (1992, 1996); see on-line appendix C).
4.

Methods

For the cross-sectional analysis, we draw on the industrial concentration literature to examine changes in the concentration of income over time. Generally used to measure the degree
of competition between rms, the m-rm, or in this case the m-charity, concentration ratio is
dened as the share of total income going to the m largest charities in each year. We also employ
a complementary alternative, the top p% share, which is dened as the share of total income
captured by the largest p% of charities in each year. Formally we dene these metrics at time t
according to
N
N


ckt = it yit
yit
.1/
i=1

i=1

where ckt is either the m-charity concentration ratio .k = m/ or the top p% share (k = p) and yit
is the income of charity i = 1, . . . , N. The dummy it equals 1 if charity i is among the m largest
charities for cmt , or among the largest p% of charities for cpt , and 0 otherwise.
For the longitudinal analysis, we draw on the framework of the income mobility prole
from the income inequality literature (Van Kerm, 2006, 2009; Jenkins and Van Kerm, 2008).
This is a helpful approach, using local regression techniques, for succinctly summarizing the
association between income growth and the initial rank in the income distribution. With the
industrial concentration literature, we share an interest in the relationship between initial size
and income growth and in particular in examining the growth of the very biggest organizations.
Therefore, we adapt the income mobility prole to examine the association between initial
income (rather than initial income rank) and income growth, and we dene neighbourhoods
for the local regressions to ensure that there are fewer organizations in the bandwidths at the
top of the initial income distribution than at the bottom.
We smooth charities incomes over a 3-year period, so income yit is an average of incomes at
times t 1, t and t + 1. We then examine relative income growth g, which is dened here as

Are Big Charities becoming More Dominant?

g = yt =ys

765

.2/

where s < t. Thus, if there is no change in real income for a charity over the analysis period,
g = 1; for a real increase in income, g > 1; for a real decrease in income, g < 1. If all charities
experienced the same relative growth, there would be no change in income concentration: each
charitys share of total income would remain the same. Hereafter, all references to growth or
growth rate refer to this measure of relative income growth. Since we present a 3-year moving
average, we present trends for 19982007 based on data for 19972008.
Like Van Kerm (2006, 2009) and Jenkins and Van Kerm (2008), we consider differences in the
expected value (mean) of g at different points in the initial income distribution by using local
regression techniques. However, we also consider differences in the median value of g. This is
because the distribution of g is positively skewed, with a small number of high relative growth
rates where initially small charities have grown over the analysis period to many times their initial
size. Note that, where the mean income growth is considered, statistics on the average income
change are sensitive to a small number of large values (Van Kerm, 2006). By considering the
median g around a particular initial income position, the results are robust to these cases. This
represents a particular substantive focus on how a typical (middle performing) charity of a particular initial size has grown over the period. An alternative approach, considering the mean of
the transformed log.yt =ys / distribution, would have provided robustness to outliers, but not the
insights into the nature of the growth distribution provided when examining a range of quantiles.
Indeed, as well as estimating the median value of g around an initial income size y1 , we also
estimate a range of other quantiles of g. This provides a richer insight into how income growth
varies according to initial size than would estimation of the conditional mean alone. Given
variability in growth rates even for organizations of similar initial size, the aim is to capture
important patterns in the relationship between initial size and subsequent growth through considering smoothed estimators of the conditional growth rate distribution. We use locally linear
quantile regression (Yu and Jones, 1998; Koenker, 2005) to produce smoothed estimates of the
conditional quantiles of the relative growth distribution, just as locally linear regression (LOESS
smoother) is used to produce smoothed estimates of the conditional mean (Cleveland, 1979).
On-line appendix D provides details of the local regression estimation.
5.

Cross-sectional perspective

5.1. Context: the growth of the sectors

We begin by presenting the distribution of total income in 1998 and 2008, and the trends in
total income over the period, to provide important context for trends in income concentration.
The distributions of income for all charities and for social service charities are very similar
(Table 1). Half of all the charities in our sample earned less than about 11740 in 1998; by
2008, the median had increased slightly to 15740. The gures are very similar for social service
charities.
There has been a real increase in the aggregate income of all charities, and for social service charities specically. Total income grew at average annual rates of 7.0% and 6.0% between
1998 and 2008 respectively. Both outpaced the 2.3% average annual growth of gross domestic
product over that period (authors calculation using gures from Ofce for National Statistics
national accounts). These estimates are based on a simple summation of individual organizations incomes in a particular yearsuch that, to the extent to which some organizations pass
on funds to others within the same subsector, this will lead to an overestimate of total income
through double counting.

766

P. Backus and D. Clifford

Table 1.

Income distribution in 2008 for all charities, and social service charities

Statistic

p5
p25
Median
p75
p95
Mean
Charities
Total income

All charities income ()

Social services charities income ()

1998

2008

1998

2008

1773
4637
11740
41193
410473
177496
87828
15.60 billion

1684
5421
15740
63781
670288
284346
107499
30.57 billion

1731
4432
11168
46109
406841
220582
19674
4.34 billion

1540
4866
13917
67326
710479
337980
22644
7.66 billion

The total number of charities in our panel grew at an average annual rate of 2.0% to 107499
charities in 2008. The number of social service charities grew to 22644 at an average annual
rate of 1.4%. Since we only include in our panel charities with a reported income (appendix B),
this increase may reect increased levels of income reporting for smaller charities. Therefore,
whereas we are condent that aggregate income in the sector has grown, we are more cautious
about making conclusions about trends in the number of charities.
5.2. Trends in income concentration
It is clear that total income has increased signicantly over the observed period, but there is particular interest in trends in the distribution of income: is there evidence that the biggest charities,
dened in a particular year, account for an increasing share of that income?
The top 100 charities account for about a third of total charitable income in the sector as a
whole; for social service charities, the top 100 account for three-fths of total income (Fig. 1).
In terms of change over time, there is no evidence that the level of income concentration is
increasing over the analysis period. Indeed, for charities as a whole, and for social service charities specically, the picture is of stable or slightly declining levels of concentration. To test the
robustness of these results in a context in which the total number of charities in our panel has
increased over the period (Table 1), in addition to the 100-charity concentration ratio we also
consider the share of income of the top 1% of charities. The pattern of stability is much the
same (Fig. 1).
The pattern of stable or declining levels in concentration is, perhaps, opposite to what we
might expect given the perception of an established trend towards the concentration of income
in the very richest charities (Duncan-Smith, 2005). However, the cross-sectional results alone
are not sufcient to answer the question are big charities becoming more dominant?. We also
need to understand the dynamics of change, in terms of differential growth and the turnover of
organizations. This requires a longitudinal perspective.
6.

Longitudinal perspective

It is clear that the majority of the increase in total income for the sector as a whole, and for
social service charities specically, reects the growth of existing organizations (Table 2 presents
the breakdown of growth). Indeed, the share of growth accounted for by existing organizations

Are Big Charities becoming More Dominant?

767

70

% of total sector income

60
50
40
30
20
10
0
1998

2000

2002

2004

2006

2008

Year

Fig. 1. 100-charity concentration ratio and top 1% share (owing to incomplete data coverage of the population of registered charities in 2001, the observed increase in concentration in that year ought to be interpreted
with caution):
, 100-charity ratio (all); , 100-charity ratio (social service); , top 1% (all); ,
top 1% (social service)

is likely to be underestimated, whereas the contribution to growth of turnover is likely to be

overestimated, through failure to track every organization throughout the period (see on-line
appendix B). Given the importance of growth of existing organizations, it is important to assess
which of these existing charities grew morethe initially small or the initially large?
6.1. Differential growth: income mobility profiles
The mean income mobility prole illustrates differences in the mean relative income growth
around different points in the initial size distribution (Fig. 2). It shows that the initially smaller
organizations had a higher mean growth between 1998 and 2007 than the initially biggest organizations. However, in part this reects the inuence of a small number of very large relative
growth rates towards the bottom of the initial size distribution (when relative growth rates of
more than 20 are removed, charities with an initial income of around 500000 have a higher
mean growth rate than those that were smaller). More generally, it reects the skewed nature of
the conditional growth rate distribution.
Table 2.

Composition of growth, 19982008

Share

All charities
share

Social service
charities share

Share of 1998 income of charities dissolved by 2008

Share of 2008 income from charities entering since 1998

0.05
0.23

0.04
0.13

Share of total income growth

From existing charities
From net turnover (plus entries minus dissolutions)

0.55
0.45

0.75
0.25

768

P. Backus and D. Clifford

16
2.2
14

2.1

12
10

Growth rate

1.8
1.7

1.6
1.5

1.4
4

1.3
1.2

No. of organizations (1000s)

2
1.9

1.1
1

0
5000

50000

500000
Income in 1998

5000000

50000000

Fig. 2. Mean income mobility profile for all charities (growth rate refers to relative growth between 1998 and
2007; number of organizations refers to the number of organizations within neighbourhood; the initially largest
two charities, which do not fall within a neighbourhood of at least 10 organizations, experienced growth rates
of 0.81 and 1.71):
, growth rate (left-hand axis); . . . . . . . , number of organizations (right-hand axis); j,
pointwise 95% confidence intervals derived from bootstrap resampling

This underscores the importance of estimating a series of income mobility proles, based on
local quantile regression, to explore how the distribution of income growth varies according
to initial size (Fig. 3). On the one hand, the larger organizations show less marked declines
in income at the lower end of their relative growth rate distribution than do smaller charities.
Indeed, for organizations above an initial size of 50000, the 25th percentile p25 of the growth
rate tends to increase with initial size. On the other, the smaller charities have a capacity for
high relative growth. This is illustrated in the income mobility prole for the 90th percentile
p90 of the growth rate, which exceeds that of the very biggest charities. Overall, with increasing
initial size, there is a narrowing in the distribution, indicative of decreases in the p75/p25- and
p90/p10-ratios; with increasing initial size, the distribution becomes less positively skewed and
the values for the median and mean become more similar. Given the skewed nature of the conditional distribution for all except the initially biggest charities, when comparing across initial
sizes the median is a more appropriate summary of average growth than the mean.
Importantly, the median income mobility prole shows an increasing median growth rate
between 1998 and 2007 with increasing initial size in 1998 (Fig. 4). The typical bigger charity
grew at a signicantly higher rate than the typical smaller charity. Indeed, the initially biggest
charities of all tend to have the highest median growth rates, but note the less smooth nature of the prole, and the wide bootstrap condence interval, at higher values of initial size.
This reects the much smaller number of organizations in these neighbourhoods and therefore the high variability of the estimate according to whether or not particular organizations
are included in the analysiswhich particular organizations, and which particular years, are
considered will have an important inuence on the nature of the prole at the top of the initial
size distribution.
Given particular substantive interest relating to the shift towards contract-based statutory

Are Big Charities becoming More Dominant?

769

Growth rate

0
5000

50000

500000
Income in 1998

5000000

50000000

Fig. 3. Income mobility profiles for the mean and various quantiles for all charities (the growth rate refers to
relative growth between 1998 and 2007):
, mean; . . . . . . . , p90; , p75;
, p50; , p25;
. . . . . . . , p10

funding for charities providing social services, we also present trends for this subsector specically. We present the median income mobility prole here (Fig. 5); proles for the mean and
for other quantiles, which as for the total population of charities show a skewed conditional
growth distribution, are available from the authors on request. The median prole shows, for
organizations above an initial size of 15000, an increasing median relative growth rate between
1998 and 2007 with increasing initial size in 1998. This is consistent with predictions about the
preferential growth of established social service organizations, of sufcient size to employ paid
staff and which tend to be bureaucratically organized, during a period of formalization of statutory income (e.g. Waine (1992)). The median growth rate continues to increase as initial size
increases to 500000. However, beyond this point there is no evidence that the median growth
rate continues to increase with increasing initial size: for this specic set of organizations, there
has been preferential growth of established social service charities in general, but not of the
very largest in particular.
Overall, the median income mobility proles show that there is a clear relationship between
initial size and subsequent growth: the typical initially large charity grew more than the typical initially small charity. Clearly, the longitudinal approach provides important information
which cannot be inferred from the cross-sectional trends. The distinctive pattern of growth for
the population of charities as a whole, and within the social services subsector in particular, is
consistent with the idea that there were benets to being of a certain initial sizein terms of
the ability to secure further statutory and private income. It is worth emphasizing that this is
using a relative growth rate: for an initially large charity to grow more in proportionate terms,
this requires particularly large nominal growth. Note, also, that the nature of this relationship
is robust to the specication of shorter time periods instead of the full 10 years.
6.2. Dissolution
The income mobility proles relate income growth to initial size, conditional on that organ-

770

P. Backus and D. Clifford

1.6

14

1.5

12
10

1.4

8
1.3
6
1.2

1.1

No. of organizations (1000s)

Growth rate

16

0
5000

50000

500000
5000000
Income in 1998

50000000

Fig. 4. Median income mobility profile for all charities (growth rate refers to relative growth between 1998
and 2007; number of organizations refers to the number of organizations within a neighbourhood; the initially
largest two charities, which do not fall within a neighbourhood of at least 10 organizations, experienced growth
rates of 0.81 and 1.71):
, growth rate (left-hand axis); . . . . . . . , number of organizations (right-hand axis);
j, pointwise 95% confidence intervals derived from bootstrap resampling

izations surviving till the end of the analysis period. Therefore, here we examine another longitudinal aspectthe relationship between initial charity size and survival. We use the same
neighbourhoods as for the income mobility prole (on-line appendix D) and examine the proportion of charities within each neighbourhood which dissolvedfailed to surviveover the
period. Since there is no strong incentive for inactive organizations to remove themselves from
the register, even if the charity is no longer operating there may be no formal date of dissolution
linked to the entry on the Charity Commission register. Therefore, if a charity has an income
above 1000 in 1998, but no value for income in 2007 and 2008, we use this as an indication of
charity dissolution over the period. Using this denition, around 11000 charities dissolved during the period (including around 2400 social service charities). We estimate that they account for
5% of 1998 income for the sector as a whole, and 4% for the social service subsector specically
(Table 2), though these gures will be overestimates if we have failed to link charity records over
the period (on-line appendix B).
As Fig. 6 shows, initially small charities are more ephemeral than initially large ones: a much
higher proportion dissolved over the analysis period. This pattern is consistent whether we consider the population of charities as a whole, or social service charities specically. The patterns
for differential growth should be understood within this context. Since smaller charities are
more likely to dissolve, at the end of the period we are left with a select group of small charities
with a positively skewed distribution of growth, reected in the difference between the mean
and median growth rates (Fig. 2). However, despite this selection effect, smaller charities still
had the lowest median relative growth rate. In other words, there is evidence for a compound
relationship between initial size and subsequent experience: smaller charities were less likely to
survive and had a lower median relative growth rate conditional on survival.

Are Big Charities becoming More Dominant?

771

2
3
2.5

1.6

1.4

1.5
1

1.2
0.5

No. of organizations (1000s)

Growth rate

1.8

1
0
5000

50000

500000
Income in 1998

5000000

50000000

Fig. 5. Median income mobility profile for social service charities (growth rate refers to relative growth
between 1998 and 2007; number of organizations refers to the number of organizations within a neighbourhood):
, growth rate (left-hand axis); . . . . . . . , number of organizations (right-hand axis); j, pointwise
95% confidence intervals derived from bootstrap resampling

6.3. Entry
Entries are identied as charities that were not present in 1998, which have a post-1998 year
of registration. Between 1998 and 2008, 29785 charities entered the sample (5485 social service
charities). We estimate that they account for 23% of 2008 income for the sector as a whole,
and 13% for the social service subsector specically (Table 2), though as with dissolutions these
gures may be overestimates if we have failed to link charity records over the period.
For dissolutions the relationship of interest, that between exit and initial size, is more easily dened than for entries (charities that register over the period). Here, we illustrate the
importance of entry by examining the proportion of charities in 2008, across the size distribution, that had registered after 1998. In 2008 about 8% of the smallest charities across the
sector as a whole had been registered since 1998 (Fig. 7). A much smaller proportion of the very
largest charities had been formed since that time.
Note that the net effect, considering both entry and dissolution, has been an increase in
the number of charities in our panel (Section 5.1). Therefore, despite the higher probability
of survival, and the higher median growth, of the initially big, there are actually more smaller
organizations at the end than at the beginning of the period. Again, we should be cautious when
interpreting these gures since this increase may reect increased reporting of income data for
smaller charities. However, it is clear that longitudinal dominance in terms of survival and
differential growth of the initially big does not necessarily result in a reduction in the number
of small organizationsgiven the potential for new organizations to be formed.
7. Understanding the relationship between cross-sectional and longitudinal
perspectives
The cross-sectional perspective asks the specic question is there a tendency for the biggest
charities, as dened in a particular year, to account for a growing share of total charity income

772

P. Backus and D. Clifford

Proportion dissolved by 2008

0.25

0.2

0.15

0.1

0.05

0
5000

50000

500000
Income in 1998 ()

5000000

50000000

Fig. 6. Proportion of charities to have dissolved between 1998 and 2008, by initial size:
social service

, all; ,

Proportion registered since 1998

0.15

0.1

0.05

0
5000

50000

500000
Income in 2008

5000000

50000000

Fig. 7. Proportion of charities to have entered between 1998 and 2008, by size in 2008:
social service

, all; ,

over the period of analysis?. Top 100 and top 1% concentration ratios indicate that, for the
specic subpopulations of charities considered, the answer is no. The picture is of stable or
slightly declining levels of concentration. From the longitudinal perspective, the key question
is have the initially big charities grown more than the initially small?. We nd that the mean
relative growth rate is lower for the initially large than for the initially small charities, which
is a result that is entirely consistent with the cross-sectional results. However, importantly, the

Are Big Charities becoming More Dominant?

773

median relative growth rate for the initially large charities is actually much higher than for the
initially small charities. Thus the typical small charity has grown less than the typical big charity.
To explore the relationship between the cross-sectional and longitudinal results further, we
extend the analysis by repeating the cross-sectional perspective for the balanced panel of charities, which exist throughout the period, considered in the longitudinal perspective. We nd that
the pattern of stable or falling concentration is largely unchanged (the gures are not shown but
are available from the authors on request). This means that we can apply insights from research
on individual income inequality. In the balanced panel context, cross-sectional trends in income
concentration reect the net effect of two underlying longitudinal components: the pattern of
mean income growth according to initial size, and the extent of reranking of individuals in the
income distribution (Section 2.2; see Jenkins and Van Kerm (2006)).
This helps us to understand that the cross-sectional and longitudinal results are entirely consistent with each other, though the longitudinal picture could not have been inferred from the
cross-sectional. Where mean relative income growth towards the bottom of the initial income
distribution exceeds mean relative growth at the top of the distribution, cross-sectional concentration ratios will necessarily decline unless offset by the reranking effect where the initially
smaller become members of the top k charities. Therefore, the stable or slightly decreasing
cross-sectional concentration ratios that we observe reect the higher mean growth rates of the
initially smaller organizations, partially offset by the reranking of charities in the income distribution. But the analysis here is particularly interesting because the growth rate distribution is
highly skewed for all except the initially biggest charities, such that there is a difference between
median and mean growth rates. Therefore, cross-sectional measures do not show evidence for
an increase in income concentration at the top end of the distribution, because of the higher
mean growth rates of the initially smaller, yet the median growth rate of the initially smaller
charity is actually much lower than that of the initially larger charities.
Thus the longitudinal perspective is consistent with the cross-sectional but provides new
insights which are important when considering the normative implications of the trends. This
is a point that was made by Jenkins and Van Kerm (2006), who showed that it is possible both
(from a cross-sectional perspective) for the poor to have fared relatively badly compared with
the rich and (from a longitudinal perspective) for income growth to be concentrated among the
initially poor. We argue that, not only is it important to consider the longitudinal perspective,
but it is also important to consider the nature of the conditional growth rate distribution. The
normative implications of a certain mean growth in income among the initially small (or the
initially poor) might be considered very different for a symmetrical growth rate distribution
where the mean and the median growth rates are similar, compared with a highly skewed distribution where the median is much below the mean. Indeed, this analysis has demonstrated
that it is possible for the share of the biggest charities to have declined, reecting a higher mean
growth of the initially small, and yet for the median growth rate of the initially biggest to be
much higher than that of the initially smallest charities.
This highlights the importance of considering a range of quantiles of the conditional growth
rate distribution, rather than the conditional mean alone. We argue that since the conditional
income growth distribution is positively skewed for all except the initially largest charities, with
the mean inuenced by a small proportion of initially smaller charities growing at high relative
growth rates, when comparing growth rates across different initial sizes it makes sense to use
the median. This represents a particular focus on how a typical (middle performing) charity
of a particular size in 1998 has grown over the period. Analysis of other quantilessuch as the
25th, 75th, 10th and 90thof the conditional distribution provides further insights into how
growth is related to initial size. In the income inequality literature, assessments of pro-poor

774

P. Backus and D. Clifford

growth are often based on summary measures obtained from integrating the conditional mean
of (log-) income growth across the initial rank distribution. Similarly, in the industrial concentration literature, longitudinal research often relates mean growth to initial size. In both elds,
these analyses would usefully be complemented by consideration of various quantiles of the
conditional growth distribution.
8.

Discussion

A recent normative debate was prompted by concerns that big charities were becoming increasingly dominant, marginalizing innovative methods adopted by smaller, unorthodox and more
exible organizations (Duncan-Smith, 2005; Plummer, 2008; Benjamin, 2009). Much of the
debate has implicitly adopted a longitudinal perspective. Thus Duncan-Smith (2005) argued
that a small minority of large charities are becoming ever more dominant, and that big charities are increasing market share at the expense of smaller rivals. These are implicit claims
about the dynamics of change: that the initially big are growing more than the initially small. In
contrast, Bubb (2008) implicitly presented the possibility of a very different scenario, in which
a small charity becomes big:
larger charities have got large and are often growing because they are good at what they do . . . : If a
small charity has a service people need and it grows because people want what they have to offer does
it turn into a bad charity?

Despite this substantive interest, although the increase in total charitable income has been
well documented (e.g. Kane et al. (2009)), thus far there has been no empirical information on
any changes in the distribution of that income. Therefore, this paper has asked the general questionare big charities indeed becoming increasingly dominant?. The analytical approach was
informed by recent developments in the literature on trends in industrial concentration and on
trends in individual income inequality, which have highlighted the importance of a longitudinal
approach to complement cross-sectional analyses (e.g. Jenkins and Van Kerm (2006, 2008)).
Therefore, for the rst time we have built a panel data set to enable us to track the longitudinal
patterns underlying cross-sectional trends.
The positive relationship between initial size and median growth that was revealed by this
analysisand the signicant nominal growth of large charities that this represents, given that
they have grown more in proportionate termsis consistent with there being advantages to
being of at least a certain initial size. For social service organizations, this ties in with the predictions that larger bureaucratic organizations with paid staff would be better placed to grow
in an era in which statutory income would increasingly be delivered through contracts rather
than grants (Waine, 1992; Lewis, 1993; Charlesworth et al., 1996). The results show, also, that
not only do initially larger charities have a higher median growth rate conditional on survival
over the period, but also that they are more likely to survive.
The results have relevance to the current governments plans for The Big Society, which place
importance on the role of charities and other civil society organizations. One of the central principles is to encourage more people to work together in their neighbourhoods, such that charities
and other neighbourhood groups take more action at a local level (Coote, 2010). Indeed, the
governments reform agenda is designed to give new powers and rights to neighbourhood groups
to help communities to address local issues (e.g. in being able to bid to take over the running
of community amenities, such as parks and libraries, that are under threat). One of the stated
ambitions is that every adult in the country becomes an active member of an active neighbourhood group (Conservative Party, 2010). In short, there is particular emphasis on the ability
of these smaller organizations to thrive and grow. Given the results that are presented here, if

Are Big Charities becoming More Dominant?

775

the government is particularly keen to encourage the growth of the smaller, community based
. . . groups described by Waine (1992), page 80, this might require specic initiatives to enable
smaller organizations to benet more from both statutory and private sources of income. However, concern may be tempered by the fact that, even for the smallest social service organizations,
the median growth rate of charities just about kept pace with ination (Fig. 5). Others would
also point to the higher mean growth of initially smaller charities than initially larger ones,
reecting the success of a small proportion of initially small charities with very high relative
growth rates.
In thinking through the implications of the patterns that were presented, perhaps the key
thing to remember is that these took place during the nice decade for the sector (Wilding
(2010), page 97), where there was a signicant increase in total charitable income in the post1997 period (e.g. Kane et al. (2009)). The situation now is very different, and it may become
more of a zero-sum game. In particular, many charities face a much tougher statutory funding
environment. Therefore, future research should continue to monitor not only trends in aggregate income levels but also consider, from cross-sectional and longitudinal perspectives, how
any reduction in aggregate income levels affects trends in the size distribution of charities.
Acknowledgements
Many thanks go to the referees for their thorough, thoughtful, constructive comments and
suggestions. Many thanks go to John Mohan for overseeing this work, to Peter Smith for his
advice on local regression and to John Micklewright for comments and suggestions in the formative stages of the work. We are also grateful to David Kane and others at the National
Council of Voluntary Organisations for sharing their work on classifying charities according to
the international classication of non-prot organizations and according to the general charities denition, to Eleanor Tew at the Charity Commission for providing new and old charity
numbers for certain charities which transferred their funds on incorporation to a charitable
company, to Steve Barnard for help with cleaning the 19972001 nancial data, to Sam Shave
for help with linking charities records over time and to Tom King for comments on a draft of
the manuscript. We acknowledge the provision of the 19972001 data by the National Council of Voluntary Organisations and of the 20022008 data by GuideStar. This work has been
carried out as part of a programme of research carried out by the Centre for Charitable Giving
and Philanthropy (funded by the Economic and Social Research Council, the Ofce for Civil
Society, Carnegie UK Trust and the Scottish Government) and the Third Sector Research Centre (funded by the Economic and Social Research Council, the Ofce for Civil Society and the
Barrow Cadbury Trust). Any errors, omissions or opinions are the responsibility of the authors
alone.
References
Aldashev, G. and Verdier, T. (2010) Goodwill bazaar: NGO competition and giving to development. J. Devlpmnt
Econ., 91, 4863.
Atkinson, A. B., Backus, P. G., Micklewright, J., Pharoah, C. and Schnepf, S. V. (2012) Charitable giving for
overseas development: UK trends over a quarter century. J. R. Statist. Soc. A, 175, 167190.
Baldwin, J. and Caves, R. (1998) The Dynamics of Industrial Competition: a North American Perspective. Cambridge: Cambridge University Press.
Benjamin, A. (2009) Charities in the noughties. The Guardian, Dec. 18th. (Available from http://www.guard
ian.co.uk/society/joepublic.)
Bilodeau, M. and Slivinski, A. (1997) Rival charities. J. Publ. Econ., 66, 449467.
Bubb, S. (2008) Lets hear it for large and good, crime and awards. Association of Chief Executives of Voluntary
Organisations, London. (Available from http://bloggerbubb.blogspot.com.)

776

P. Backus and D. Clifford

Cabinet Ofce (2010) Building the Big Society. Cabinet Ofce, London.(Available from http://www.cabinet
office.gov.uk/news/building-big-society.)
Castaneda, M. A., Garen, J. and Thornton, J. (2008) Competition, contractibility, and the market for donors to
nonprots. J. Law Econ. Organzn, 24, 215246.
Cha, I. and Neilsen, W. (2001) Is competition among charities bad? Working Paper 0116. Texas A&M University,
College Station.
Charlesworth, J., Clarke, J. and Cochrane, A. (1996) Tangled webs?: managing local mixed economies of care.
Publ. Admin., 74, 6788.
Cleveland, W. (1979) Robust locally weighted regression and smoothing scatterplots. J. Am. Statist. Ass., 74,
829836.
Conservative Party (2010) Building a Big Society. Conservative Party, London. (Available from http://www.
conservatives.com.)
Coote, A. (2010) Ten big questions about the Big Society and ten ways to make it the best of it. New Economics
Foundation, London. (Available from http://neweconomics.org/articles/ten-big-questions
-about-the-big-society-html.)
Curry, B. and George, K. D. (1983) Industrial concentration: a survey. J. Industrl Econ., 31, 203255.
Duncan-Smith, I. (2005) Breaking the big state big charity duopoly. (Available from http://www.iainduncansmith.org.)
Feigenbaum, S. (1987) Competition and performance in the nonprot sector: the case of US medical research
charities. J. Industrl Econ., 35, 241253.
Jenkins, S. P. and Van Kerm, P. (2006) Trends in income inequality, pro-poor income growth, and income mobility.
Oxf. Econ. Pap., 58, 531548.
Jenkins, S. P. and Van Kerm, P. (2008) Has income growth in Britain become more pro-poor? 30th Gen. Conf.
International Association for Research in Income and Wealth, Portoroz, Aug. 24th30th.
Kane, D., Clark, J., Lesniewski, S., Wilton, J., Pratten, B. and Wilding, K. (2009) The UK Civil Society Almanac
2009. London: National Council of Voluntary Organisations.
Kendall, J. (2003) The Voluntary Sector, Comparative Perspectives in the UK. London: Routledge.
Koenker, R. (2005) Quantile Regression. Cambridge: Cambridge University Press.
Leat, D. (1995) Funding matters. In An Introduction to the Voluntary Sector (eds J. Smith, C. Rochester and
R. Hedley), pp. 157190. London: Routledge.
Lewis, J. (1993) Developing a mixed economy of care: emerging issues for voluntary organisations. J. Socl Poly,
22, 173192.
Mas-Colell, A., Whinston, M. D. and Green, J. R. (1995) Microeconomic Theory. New York: Oxford University
Press.
Plummer, J. (2008) Survey of charity income growth fuels Tescoisation claims. Third Sector, London. (Available
from http://www.thirdsector.co.uk.)
Salamon, L. M. and Anheier, H. K. (1992) In search of the non-prot sector ii: the problem of classication.
Voluntas, 3, 267309.
Salamon, L. M. and Anheier, H. K. (1996) The International Classication of Non prot Organizations
Revision 1. Working Paper 19. Johns Hopkins Comparative Nonprot Sector Project, Baltimore.
Van Kerm, P. (2006) Comparisons of income mobility proles. Working Paper 2006-03. Center for Population,
Poverty and Public Policy Studies, Differdange.
Van Kerm, P. (2009) Income mobility proles. Econ. Lett., 102, 9395.
Waine, B. (1992) The voluntary sectorthe Thatcher years. Socl Poly Rev., 4, 7088.
Wilding, K. (2010) Voluntary organisations and the recession. Voluntry Sector Rev., 1, 97101.
Yu, K. and Jones, M. (1998) Local linear quantile regression. J. Am. Statist. Ass., 93, 228237.

Supporting information
Additional supporting information may be found in the on-line version of this article:
On line appendixes.
Please note: WileyBlackwell are not responsible for the content or functionality of any supporting materials supplied by the authors. Any queries (other than missing material) should be directed to the author for correspondence
for the article.