The cuts: news and views

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Immediate reaction to the CSR: impact on the voluntary sector

Immediately after the Government's CSR announcement, we spoke with Cathy Pharoah, Co-Director of the Centre for Charitable Giving and Philanthropy and Professor of Charity Funding at Cass Business School.

Which of the chancellor's announcements are going to hit non profits the hardest?

The Spending Review is clearly aimed at service reconfiguration as well as savings, and both these aspects are likely to have a major effect on the voluntary and community sector.

If public sector spending in the voluntary sector is reduced at the same rate as average departmental spending reductions, this could mean a loss of £2-3 billion over the next four years to the sector.

The review’s ‘axe’ falls most heavily on the departments which fund major areas of voluntary sector activity, potentially placing the sector in the direct firing line for many cuts (HM Treasury Spending Review 2010).

Particularly likely to impact on spending in the voluntary sector are:

• the real-term fall over four years of 51 per cent in the budget of Communities and Local Government (CLG), the largest of all Government departmental cuts
• the extra £7 billion in savings found from the welfare budget which enabled departmental cuts to be kept below 25 per cent
• a real-term four-year fall of in the budget of the Department for Media Culture and Sport (DCMS) of 24 per cent, with a cut in the Arts Council budget of 30 per cent over the four years
• a real-term four-year fall of 27 per cent in the local government budget
• a real-term four-year 29 per cent fall in the budget of the Department for the Environment, Food and Rural Affairs (Defra).

What sectors (housing/arts/education) in particular are going to suffer?

It is not possible at this stage to predict where the fall-out from the average 19 per cent cut in departmental expenditure will land on the voluntary sector. Local authorities have been given increased discretion over their spending, but this could mean that there may be something of a postcode lottery.

Many areas of the voluntary sector with a high dependence on public sector funding also deal with groups most likely to be affected by the Spending Review’s reductions. That is, those affected by caps on benefits and local authority spending, removal of disability benefits and the capping of social housing finance. Voluntary sub-sectors at risk are disability, the elderly, mental health, the deaf, youth and some children’s areas.

Clients with the multiple inter-related risks which arise from problems such as domestic violence, homelessness, ex-offenders and mental health problems may be the most exposed to changing and reduced funding regimes. The demand for voluntary services may grow sharply, just as budgets are cut or affected by new funding regimes.

Government plans to pay and tender for more services, rather than provide them. This will trigger service reconfiguration amongst many voluntary providers. Government has identified high needs areas such as social care, early years, community health services, pathology services, youth services and the court and tribunal services, and early interventions for the neediest families as particularly appropriate for new payment approaches.

While the door is open to the voluntary and community sector to provide these, time will be needed for transition, and the effect of switching to new payment regimes in terms of overall service cost is an unknown.

The arts and culture sector is heavily dependent on national and local statutory funding, and it will be hard for it to find alternatives to this as the support it gets from private donors (individual and corporate) tends to be niche and specialised.

Has the CSR revealed any big surprises?

Some areas have come off less well than perhaps expected. The NHS budget is set to grow by just 1.3 per cent over the four years. This may mean that there will be less money for initiatives in health advice, promotion and prevention, as constrained budgets try to address the growing needs of an aging population. This will affect the voluntary sector, which plays a big role in health advice and information.

Education too will see a 3.4 per cent cut, but international development will see a 37 per cent real growth over four years, fulfilling the Government’s promise to protect this area and helping to ensure that the growth in the UK’s international development sector seen over the last couple of decades is maintained.

Surprises to help the voluntary and community sector include a £100 million transition fund, both welcome and necessary as the sector tries to find resources to invest in change, service reconfiguration and new sources of income generation.

Government has said it may explore the option of setting proportions of services to be provided independently by private and voluntary sector, though has not indicated any ring-fencing for the voluntary sector. This might encourage more local and health authorities to transfer services to the sector, and give social enterprise the stimulus it needs.

Tucked away in the Review is also a proposal for an endowment fund to assist local voluntary and community organisations. There is little detail on this but it is referred to as a ‘Community First Fund to support local and community organisations’. Clearly much of the impact of the Spending Review on the voluntary sector will be felt at the local level, and measures to help build community resources are appropriate.

Around £470 million will be available for capacity building in the voluntary sector, aimed at funding the National Citizen Service, and the transition fund.

Where to next? How long do you envisage this 'age of austerity' lasting? What can smaller organisations do to survive?

This is going to be a long road. The Review’s figures do not anticipate a convergence between government income and expenditure until 2015/16.

The sector will need to develop a response to change, with functions such as a ‘Watchtower’ information service reporting on, for example, where the cuts are biting hardest and where niche services are at risk. (NCVO has already begun to put the pieces of this kind of facility in place).

Many organisations will need help in dealing with the practicalities of project or site closures, redundancies and service reconfiguration. There will also need to be some co-ordination of the spending of the transitional relief fund. Reconfiguring sector infrastructure will a be challenge, as the closure of the Regional Development Agencies, and the reductions in Cabinet Office funding for infrastructure bodies, will all have the effect of slimming it down.

In the new world, size of organisation may be less important for survival than funding structure. Large organisations may lose projects, and services, and only survive in a reconfigured state.

Are there opportunities for any positive outcomes following these cuts?

There are many positive opportunities for the voluntary and community sector, and this is emphasised at several places in the Spending Review. Government aims to see more public services provided within the voluntary and community sector, using carrots such as new payment systems, and potential sticks such as apportionment. It also aims to support the building of Big Society, though this is all still a bit of an unknown.

To what extent can trusts and foundations fill the gaps left by the public spending cuts?

It is not the role of independent charitable trusts and foundations to step in where government services have withdrawn. On top of this, their own resources have taken a big hit from the economic turbulence, and many are already committed. However, many trusts and foundations are likely to want to give some priority to communities and groups hardest hit, and with the most severe needs.

It seems inevitable that new monies will have to be found. This may be from new donors, from private fees for services more along the lines of the US model of non profits, from efficiencies including collaboration and back-office functions sharing between voluntary organisations, from greater entrepreneurialism, or from new kinds of social finance such as Social Impact Bonds, and social investment.

Pre-announcement: thoughts from the sector

Even before the announcement, we were out gauging feelings in the charity sector. Hear how people from different voluntary sector organisations think the cuts will affect their charities and how they plan to adapt in the new climate post CSR.

• Download the CSR voxpops (MP3, 3min 47sec, 3.47mb)

• Read a transcript of the interview (Word, 28.5kb)

Useful links

• BBC's Spending Review site
• Cuts Watch (ACEVO): supporting the third sector through spending cuts - news and resources.
• NCVO's response to the CSR.
  
• Spending Review (HM Treasury).

Have your say

• How are the cuts affecting your work? Have your say about the cuts.
• NCVO are crowdsourcing the cuts - add your cuts to their survey to help build up a picture of impact across the sector.
• Add your views to the consultation about support for frontline organisations as part of the Building a stronger civil society report.
• Charity Commission's strategic review - have your say about how they should reduce their costs.
  

Stay strong

See our guide to surviving tough times for resources and support to help you plan and prepare for the future.