“You don’t know what you’ve got ’til it’s gone”

That was the message put forward this week by NCVO and IPPR North after they revealed new research showing that small and medium-sized charities have been the hardest hit by public funding cuts to the voluntary sector.


The reports (funded by Lloyds Bank Foundation) have looked at the effects of reductions in government funding between 2008 and 2013 and they do not make for happy reading.


They found that funding from local and central government for small and medium sized charities (classified as those with an income between £25,000 and £1m) has been reduced by up to 44% between 2008/09 and 2012/13. And worryingly, these smaller organisations have lost a higher proportion of their income than larger charities (those with an income of over £1m), who have been better able to weather the financial storm.


In the face of such problems, smaller charities have made major changes. Many of them cut staff numbers to save costs, and they have been successful in increasing donations from individuals. But this has not been enough to offset losses felt from public funding.


The finances of small and medium sized charities are volatile, and the research found that the smaller the charity the more volatile the change. Since the financial crisis of 2008, half of all small and medium sized charities have experienced a rise or fall in income of more than 20%.


It is to be expected that larger charities are more resilient to change. But what if the policy environment was actually favouring the survival and growth of the largest organisations over small ones, creating a de-facto un-playing field?


Income from both government grants and contracts has declined substantially in a decade. Between 2003/04 and 2012/13 government grants to the voluntary sector fell from £6bn (half of the sector’s total income from government) to just £2.2bn (17%). That is a huge loss for the sector, but it’s even greater for smaller charities which have experienced proportionally bigger losses in such government income than charities with an income above £1m.


Even when government funding is moving into the voluntary sector, the method by which it is awarded is preventing a number of smaller organisations from accessing funds. The shift towards more competitive commissioning and contracting models has made life much harder for smaller charities to get a slice of the pie. Larger charities have been able to dominate the market; offering service delivery at scale to deliver the best value for taxpayer money.


These practices have only exacerbated the vulnerability of small and medium sized charities who are already struggling to make ends meet.


So what should the government do, and how can small and medium sized charities help themselves?


We should remember that smaller charities have plenty of unique benefits which often make them best placed to deliver services at the local level. They are often rooted in their community, with intimate knowledge of local issues and context. Because of this they are very often best placed to deal with those that are hardest to reach – and ultimately, need help the most.


Yet whilst it might seem relatively easy to point out the advantages of small and medium sized charities, the problem is that it is extremely difficult to measure their impact at large.


The argument remains that smaller charities deliver not just financial benefits, but social value too. Yet no single accepted definition of social value exists – and with public contracts often decided on the basis of cost efficiencies, savings and scale, social value is often overlooked. Charities need to be better at demonstrating their value if they are to be considered for central and local government contracts and grants. Just saying “we help people” simply will not cut the mustard.


But, there is room for government to make improvements too. Its continued push towards competitive commissioning is tipping the balance of power in favour of larger organisations able to deliver services at scale. That is not always a bad thing, but governments must learn to recognise that the cheapest option is not always the best one.


In addition, the government has already set itself a target for one third of its private sector spending to go to small and medium sized enterprises, and there is certainly a question to be asked about whether or not this can translate to the charity sector too.


There is no doubt that this is a challenging climate for charities, and the issues outlined in this post will not be solved by the sector, or by government alone. The great irony of this situation is that while it is hard to measure the contributions that small and medium sized charities make while they are in operation, these contributions are much easier to notice when they are gone. Let’s hope we don’t have to find out the hard way.

Kim Roberts

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