Short-term funding cycles: why one-year grants fail long-term problems

The debate in brief

Most UK charity funding comes in short bursts. One-year grants remain the norm across government and many independent funders, despite mounting evidence that the problems charities tackle — homelessness, mental health, youth disengagement, poverty — require sustained, multi-year commitment. The result is a sector locked into perpetual fundraising mode, where organisations spend as much energy securing next year's funding as they do delivering this year's work. Staff are hired on fixed-term contracts, strategic planning becomes a fiction, and the people charities exist to help experience a revolving door of services that start and stop based on funding cycles rather than need.

Quick takeaways

The arguments

The case for multi-year funding

The strongest argument for multi-year funding is that it aligns funding timescales with the timescales of the problems charities are trying to solve. Homelessness, addiction, youth disengagement, reoffending, domestic abuse — none of these yield to a twelve-month intervention. As Lloyds Bank Foundation stated when it shifted to multi-year unrestricted grants in 2022, the challenges small and local charities tackle do not come in neat annual cycles, and neither should the funding.

Multi-year funding changes organisational behaviour in measurable ways. Charities with secure, longer-term income can recruit permanent staff, invest in training, and plan strategically rather than reactively. IVAR's research on flexible funding has repeatedly found that organisations on multi-year grants spend proportionally less time on fundraising and more on delivery. They are also more willing to be honest with funders about what is and is not working, because the relationship is not contingent on a single annual report.

The workforce argument is particularly acute. The charity sector employs around 1 million people in the UK (NCVO UK Civil Society Almanac, 2024), many of whom are on fixed-term contracts tied directly to grant periods. When funding is annual, employment is precarious. Skilled staff leave for permanent roles elsewhere. The sector then spends money recruiting and training replacements, only to lose them again when the next funding cycle ends. This is not a side-effect of short-term funding; it is a direct and predictable consequence.

The case for shorter funding cycles

The argument for shorter grant periods is not insubstantial. Funders — particularly government — face their own budget uncertainties and political cycles. Committing to multi-year grants requires confidence in future income that not all funders have. For independent foundations managing endowments, investment returns fluctuate; for government departments, spending reviews rarely guarantee funding beyond three years and often operate on annual departmental budgets.

There is also a legitimate accountability argument. Shorter grants allow funders to review performance more frequently and redirect resources if a programme is not working. For new or unproven organisations, a one-year grant may be an appropriate way to test a relationship before committing further. Some funders argue that short cycles keep charities focused and prevent complacency.

The Charity Commission has noted that robust financial management includes planning for funding uncertainty, and that charities should maintain adequate reserves to manage gaps between grants. From this perspective, the onus is partly on charities to manage the reality of the funding landscape rather than expecting funders to change it.

The hidden costs of the current system

The most compelling evidence against short-term funding is economic. The application burden alone is staggering. Each funding cycle requires a fresh application, a new budget, a revised theory of change, and a set of reports closing out the previous grant. NCVO has estimated that the sector spends hundreds of millions of pounds annually on fundraising and compliance activity, a significant proportion of which is driven by the churn of short-term grant cycles.

Staff turnover costs compound this. Recruiting, onboarding, and training a new employee typically costs between 50% and 200% of their annual salary. In a sector where annual turnover reached 19.6% in 2023 (NCVO UK Civil Society Almanac, 2024) — substantially above the UK-wide average — the aggregate cost of churn driven by funding insecurity is enormous, and it falls on the charities least able to absorb it.

The evidence

The data on short-term funding's impact is consistent across multiple sources. NCVO's UK Civil Society Almanac (2024) reported that the voluntary sector's workforce grew to just under 1 million employees, but that staff turnover remained stubbornly high at 19.6%, well above the cross-economy average. The Almanac identified insecure funding, below-market pay, and limited progression as key drivers — all of which are exacerbated by short grant cycles.

IVAR's body of work on flexible and open funding, including its Open and Trusting Grant-making initiative with over 170 signatories, has documented the difference that funding length makes. Organisations receiving multi-year grants reported greater ability to plan, invest in staff development, and respond to emerging needs without seeking additional permissions. IVAR's 2023 evidence review, "Why Restrict Grants?", found no evidence that shorter or more restrictive grants produced better outcomes.

Lloyds Bank Foundation's shift to three-year unrestricted grants for small and local charities, introduced in 2022, was accompanied by research showing that the charities it funds — typically those with income between £25,000 and £500,000 — were disproportionately harmed by short-term cycles because they lacked the reserves and fundraising infrastructure to manage constant reapplication. Its 2023 evaluation found that longer funding enabled charities to retain experienced staff and deepen their impact.

The Esmee Fairbairn Foundation, which typically funds for three to five years and made 67% of its grants as unrestricted or core-cost funding in 2025, has similarly reported that longer funding periods lead to more productive relationships and better outcomes.

Current context

The policy landscape is shifting, albeit slowly. The Civil Society Covenant, agreed between the UK government and the voluntary sector in 2025, includes explicit commitments to longer-term, more predictable funding relationships. Whether this translates into practice across government departments — many of which still operate on annual grant rounds — remains to be seen. The covenant is a framework, not a mandate.

NCVO's Road Ahead report for 2025 described the sector as facing a "big squeeze" of rising costs, increased demand, and constrained funding. The employer National Insurance Contributions increase from April 2025, estimated to cost the sector £1.4 billion, has intensified pressure on already fragile budgets. In this environment, the gap between short-term funding and long-term need is widening.

Some progress is visible among independent funders. The Association of Charitable Foundations' Stronger Foundations initiative has promoted multi-year funding as a pillar of good practice, and ACF's Foundations in Focus 2025 report showed that foundation grantmaking reached a record £8.24 billion in 2023-24. But application volumes have surged by 50-60% across the sector, meaning more charities are competing for grants that may still come with annual conditions attached.

Last updated: April 2026

What this means for charities

For charity leaders, the practical implications are immediate. Organisations dependent on annual grants should quantify the true cost of their funding cycle — not just the staff time spent on applications and reports, but the cost of recruitment churn, the strategic decisions deferred, and the reserves consumed bridging gaps between grants.

Trustees should scrutinise the organisation's funding mix with the same rigour they apply to reserves. A charity where 80% of income is annual and restricted is carrying a structural risk that no reserves policy can fully mitigate.

There is also an advocacy dimension. Charities that can demonstrate the impact of multi-year funding on their delivery — with data, not anecdote — are better placed to make the case to funders. IVAR's research shows that funders who switch to longer-term models often do so because grantees made a clear, evidence-based argument for it.

The direction of travel is toward longer, more flexible funding. Charities that position themselves to benefit from this shift — by building strong governance, transparent reporting, and honest relationships with funders — will be more resilient than those waiting for the system to change around them.

Common questions

Why do funders still give one-year grants?

Several factors sustain short-term funding. Government departments operate within spending review cycles and annual budgets, making multi-year commitments structurally difficult. Some independent funders lack confidence in future investment returns. Others default to annual cycles because their systems, application forms, and reporting frameworks are built around them. There is also a cultural dimension: short-term grants feel more accountable, even when the evidence does not support that perception.

Does multi-year funding reduce accountability?

No. Multi-year funding changes the form of accountability, not its rigour. Instead of a single end-of-grant report, funders and charities engage in ongoing dialogue about progress, challenges, and adaptation. Lloyds Bank Foundation and Esmee Fairbairn Foundation both report that their multi-year grantees are more willing to be honest about what is not working — precisely because the relationship is secure enough to tolerate honesty. Annual grants, by contrast, incentivise charities to present the rosiest possible picture each year, because next year's funding depends on it.

How does short-term funding affect charity staff?

Directly and severely. When a grant is annual, the staff delivering it are typically on fixed-term contracts. They know from day one that their role may not exist in twelve months. This makes it harder to recruit experienced people, harder to retain them, and harder to build the institutional knowledge that effective service delivery requires. The charity sector's staff turnover rate of 19.6% in 2023 (NCVO UK Civil Society Almanac, 2024) is not a mystery — it is the predictable outcome of a funding model that treats employment as a variable cost to be switched on and off.

What is the Civil Society Covenant?

The Civil Society Covenant is a framework agreement between the UK government and the voluntary sector, established in 2025. It sets out principles for the relationship between government and civil society, including commitments to more predictable, longer-term funding, greater consultation on policy changes affecting the sector, and recognition of the sector's independence. It is not legally binding, but it represents the most explicit government acknowledgment in years that the current funding model is not working.

Which funders have moved to multi-year grants?

Several major UK funders have made public commitments to longer-term funding. Lloyds Bank Foundation moved to three-year unrestricted grants for small and local charities in 2022. Esmee Fairbairn Foundation typically funds for three to five years. The National Lottery Community Fund offers multi-year funding through several of its programmes. Over 170 funders have signed IVAR's Open and Trusting Grant-making commitments, which include longer funding periods as a core principle. The Association of Charitable Foundations promotes multi-year funding through its Stronger Foundations programme.

Key sources and further reading

• UK Civil Society Almanac 2024 — NCVO, 2024. Comprehensive data on the voluntary sector workforce, including staff turnover rates, employment figures, and the funding mix across the sector.

• "Why Restrict Grants?" Evidence Review — IVAR, March 2023. Found no evidence that restricted or short-term funding produces better outcomes, and significant evidence it produces worse ones.

• Open and Trusting Grant-making — IVAR, ongoing. Initiative with 170+ UK funders committed to better funding practices including longer-term, more flexible grants.

• Lloyds Bank Foundation Funding Approach — Lloyds Bank Foundation, 2022 onwards. Documentation of the foundation's shift to three-year unrestricted grants for small and local charities (income £25,000–£500,000), with accompanying evaluation.

• Foundations in Focus 2025 — Association of Charitable Foundations (ACF), 2025. Annual data on UK foundation grantmaking, reporting record distribution of £8.24 billion in 2023-24 alongside surging application volumes.

• The Road Ahead 2025 — NCVO, 2025. Annual sector outlook describing the "big squeeze" facing charities and the growing gap between funding models and organisational need.

• Civil Society Covenant — UK Government and NCVO, 2025. Framework agreement including commitments to longer-term, more predictable funding for the voluntary sector.

• Esmee Fairbairn Foundation Annual Report 2025 — Esmee Fairbairn Foundation. Data on funding duration and the proportion of grants made as unrestricted or core-cost funding.

• Stronger Foundations — Association of Charitable Foundations, ongoing. Good practice framework for UK foundations, including guidance on multi-year funding and full cost recovery.