Underfunded public contracts leaving charities to fill shortfalls with own fundraising
Melanie May | 4 March 2024 | News
Public service underfunding is having a dire impact on charities, as well as people and communities, forcing most charities delivering these services to try and fill the gaps themselves, risking their own financial stability.
A new report from NCVO, The True Cost Of Delivering Public Services: A Survey Of Charities In England, reveals the scale of the crisis caused by years of underfunded government contracts.
The NCVO has been campaigning for months to get the government to address the issues chronic underfunding of public service grants and contracts have caused. Last week it released the Treasury’s response to a letter co-signed with over 1,400 other voluntary sector representatives, warning that the government’s response meant the ‘stark warning from the charity sector has gone unheard.’
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NCVO warns that people and communities are at real risk of losing the essential services and support they rely on with nearly 40% of organisations forced to reduce the number of people they support. 26% have decided, or are considering, not to re-tender for the service they are currently delivering because of this underfunding.
Impact of chronic underfunding
For this research, NCVO carried out a survey of 331 voluntary sector organisations in August and September last year, finding:
- Chronic underfunding: 87% of organisations report having to subsidise their government grants and contracts, with 40% stating that their grants and contracts never covered the true costs. 10% say this underfunding has gone on for more than a decade.
- Service shortfalls: Nearly three-quarters (73%) of charities cannot meet the demand for services they are funded to deliver.
- Workforce strain: Underfunded contracts have led to difficulties in recruiting and retaining staff, with 83% of charities feeling the impact. Almost two-fifths (39%) report having to reduce staff numbers due to underfunding.
- Financial risk: Charities are being left by government to fill these funding shortfalls with their own fundraising, including public donations and legacies (67%), income from charity shops (25%), and reserves (11%), putting their own financial stability at risk.
Call for government action
Ahead of this week’s spring budget, the report issues an urgent call for action from government, including:
- Increased funding: Provide long-term, adequate funding to public bodies to ensure the sustainability of service provision.
- Fairer contracts: Ensure grants and contracts cover the true cost of service delivery.
- More market oversight: Monitor the state of public service markets to prevent further deterioration. Review definition of ‘financial distress’ for providers of public services.
- Renew partnership and Innovation: Work in true partnership with charities and the voluntary sector to boost collaboration and innovation in service delivery.
Sarah Vibert, CEO of NCVO, said:
“The underfunding of government grants and contracts is unsustainable. Back in November 2023, ahead of the autumn statement, we were clear that if the issue isn’t addressed, charities will close, vital services will be cut, and communities will be failed. We’re already seeing the impact that this lack of action is having and are deeply concerned that more charities will cease operating if this is not urgently addressed.
“Charities are shouldering the financial burden of meeting the shortfalls created by underfunding to make sure that vital services continue to reach those who need them most. We need to see urgent action from the Chancellor at the budget to properly fund these grants and contracts so that our public services and our communities can thrive.”
Jacob Lant, Chief Executive of the coalition of health and social care charities National Voices, commented on the report findings, saying:
“It is highly concerning that 87% of health organisation respondents in NCVO’s survey said they subsidise grants and contracts from commissioners to be able to deliver the work they are contracted to do. In our recent members’ survey, aimed at over 200 health and care charities, over half of those polled listed funding as a key challenge being faced by their organisation.
“This double whammy of reduced funding and increased subsidisation means the vital work that the Voluntary, Community and Social Enterprise organisations do in the community is being lost. This is especially true for smaller organisations who struggle to access grants and often rely on volunteers, and yet are often the best placed to support underserved communities, or people facing inequalities.
“We risk losing the good work VCSEs are doing in reducing health inequalities, and the trust communities place in them, if we cannot resolve these funding issues.”
Local councils in crisis
Last week saw the release of a report from Pro Bono Economics and Nottingham Trent University’s VCSE Data and Insights National Observatory, on funding from local councils. It found that 28% of charities working with local councils predict their funding from them will fall over the next 12 months.
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About Melanie May
Melanie May is a journalist and copywriter specialising in writing both for and about the charity and marketing services sectors since 2001. She can be reached via thepurplepim.com.