There is still a broad perception that charities are funded almost entirely by the generosity of the public. In fact, the way that the charity sector has changed over the last 15 years means that it is often the public purse which is footing the bill. This means that the biggest influence on the environment in which charities operate in recent years is the sector’s changing relationship with government.
The graph pictured demonstrates the shift in the amount and type of money flowing from the Treasury to voluntary organisations. Under Labour during the ’00s, the government increasingly outsourced its services to private and third-sector bodies, resulting in more of a reliance on these funds for many charities. Various public services were spun out to become independent bodies and new charities emerged to take on the opportunities on offer, while the type of funding awarded shifted from grant funding – which is generally freer in use and less onerous to report upon – to contract funding, and increasingly payment-by-results contracts.
This represents a risk for smaller charities and gives an advantage to larger organisations with heftier infrastructure. Many charities we see are having to argue the case to continue the services they have delivered for years in newly competitive procurement processes, competing with a small number of large and efficient national charities who have deep enough reserves to fund the outlay and mitigate the risk precipitated by such contracts. Perhaps efficiency in this sense is good, but often smaller charities argue that this is harmful to clients: a long-standing local charity can be more embedded in the community, more responsive and less willing to cut corners to meet the satisfaction of funders keen on efficiency.
To add to this, the coalition government’s election in 2010 saw public spending cuts across the board, meaning less money was available. This meshed with the continuation of the previous administration’s trend towards contract funding, so funds are now far harder to come by. While central government has given out marginally fewer grants as a result, local government cut its grant-giving by more than half between 2009 and 2012 as it felt the pressure to provide only statutory services and reduce those seen as ‘non-essential’. This often includes things like youth services and care for those in need – services often provided by charities and funded by the Local Authority. Furthermore, grant-giving bodies have followed the example of government and now require more rigorous reporting and evidence of impact from its awardees.
It is better to light a candle than curse the darkness”
The knock-on effect of all of this is that it has become much more competitive to access funds across the range of pots in the charity sector. Still, as a proverb which one wise charity director told me goes, “It is better to light a candle than curse the darkness”. Requirements to be more efficient and strategic have increased the focus of charities on their business practices and the effectiveness of their boards. Different types of collaboration – working with partners to create consortia and compete more effectively for public tenders – have developed. The changes also mean that charities are looking more to diversify their income streams and explore the world of trading as a business, although many need support to do this effectively.
The pros and cons of the changes to the sector are still being established, and hopefully discussion will focus on the impact on those people whom charities serve; nevertheless, something which can be said unequivocally is that the landscape has become much more difficult for small and medium-sized charities.
By James Appleton, Project Manager.
This post is developed from a training session delivered for our Pilotlighters in London on 23rd March 2016.