The state we're in - the key issues for voluntary organisation in 2008

Voluntary Sector

February 2008

Back to Press coverage

A year ago Stuart Etherington proclaimed that 2007 would ‘herald a new chapter for the voluntary and community sector (VCS)’. Writing in the Guardian, NCVO’s chief executive pointed to the coming change of national political leadership, and the much-predicted squeeze on public spending to issue the sector with what he called ‘a reality check’, a warning of ‘more testing political and economic times ahead’.

Twelve months on, there are many signs that those more testing times have well and truly arrived. The strings of the public purse are gradually being tightened, the much-talked-about credit crunch shows no sign of loosening, and latest figures from large retailers suggest consumer spending is already being shackled.

Change is in the air. And it’s not just the economic climate. Sometime last year the debate around global warming noticeably cooled. Tackling climate change became less a hot political contest than an accepted agenda as governments, businesses and the media talked of carbon footprints and environmental sustainability.

So what state is the voluntary sector in at the beginning of 2008 to meet the challenges posed by these growing external pressures? And how will such outside factors impact on voluntary organisations, large and small, in the years ahead?

Funding: what to expect

According to Megan Griffith of the NCVO’s Third Sector Foresight team it all depends on how you see the sector. On the one hand, she points out, the VCS continues to grow. Indeed, it appears to be in rude financial health with a total income of some £27.7bn according to last summer’s Voluntary Sector Almanac. It also has an important influence on public policy, with both Gordon Brown and David Cameron ‘talking up the role of the sector in carrying social reforms and transforming society’.

On the other hand, funding for many individual organisations is shrinking. ‘The biggest charities [those with annual income of more than £10m] are growing and therefore the sector is growing. But smaller organisations are feeling the pinch.’

Nearly two-fifths of the sector’s income now comes from government funding and nearly two-thirds of that is distributed through contracts rather than grants, a shift that tends to favour larger charities while putting the grant- and donor-dependent smaller organisations at risk. Last December’s report from NCVO and the Charities Aid Foundation suggests the economic squeeze is already affecting donations as public giving fell by 3 per cent between 2005/06 and 2006/07. The proportion of the UK population who gave to charity also dropped.

‘Giving is discretionary,’ says Griffith. ‘So when people tighten their belts they give less, except maybe to big disaster appeals or to charities that are really close to their hearts.’

Similarly, she argues, while the slowdown in public spending has long been expected the actual impact starts this year and will last until at least 2010­–11. ‘Now is when organisations will feel it.’ Whether they are prepared for it is another matter. Some will be, says Griffith, but ‘a lot are just fire-fighting and don’t have time to look around them’.

Funding: winners and losers

According to Carl Emmerson, deputy director of the Institute of Fiscal Studies, the effect will also depend on which bits of the state voluntary organisations interact with. While spending in some areas is being cut, that in others, such as health and education, will continue to grow, although at nothing like the rate it has since 1999.

‘Voluntary organisations that work alongside the NHS, for example, may be less affected than those in some other areas,’ says Emmerson. ‘But even so, if they think they can continue to increase their activities in the way they have over the last few years, that is much less likely.’

The one area of public spending where the brakes aren’t being applied is overseas aid, which is receiving a ‘double-digit boost’ from the Treasury as the government focuses on United Nations’ targets. ‘Voluntary organisations that carry out poverty reduction work for DfID [the Department for International Development] may see huge increases,’ says Emmerson. Similarly, he says, the detail of budget cutbacks will vary across the country, between local authorities and in Scotland and Wales, as well as between departments.

Joe Saxton, founder and ‘driver of ideas’ at the voluntary sector think tank nfpSynergy, agrees that the squeeze on public finances will bite in some areas, but not others. ‘It’s incredibly patchy,’ he says. ‘If central government cuts back, some will be deeply affected, others less so. You hear about local government cutbacks, but NCH, for example, has grown massively in the last five years by picking up public service contracts.’

In fact Saxton believes the fractures within the sector pose as big a problem as the wider economic shifts. Indeed, he suggests it’s almost impossible to talk of the voluntary sector as a single entity any more.

‘The sector is experiencing growing pains and there is a lot of tension,’ he says. ‘The bigger charities are getting more and more professional, providing more public services, paying their executives higher salaries and investing in infrastructure. They are very much like any other large body. While at the other end, small organisations are struggling to find next month’s pay packet. They have very little in common any more and the tensions between them are not going to go away.’

The sector’s weakness, according to Saxton, is that it does not yet have the mechanisms to help its diverse elements through these developments, nor does it have the means to assess the effect of economic change on fundraising. Indeed, Saxton is sceptical of claims that charities will be hard hit by a slowdown.

‘I know people say it’s the organisations in the middle that feel the impact,’ he says. ‘But actually, all but the very biggest charities will always struggle, no matter what the economic climate because they are dependent on grants and trusts.’

One thing Saxton and Griffith agree on is that the shift from grant funding to contracts will accelerate and, increasingly, voluntary sector organisations will have to demonstrate their worth as they compete with other providers. In a restricted economic climate that could present a problem, as charities don’t measure their value in quite the same way as the private sector.

‘The voluntary sector doesn’t want to deliver on the cheap,’ as Saxton puts it. ‘It wants to add value, not take away cost. It needs to show it’s a better service, not the basic model. People will buy in to that notion, that charities are there to go beyond the bog standard, but they have to prove their worth.’

The changing climate

Charities don’t receive the same level of media scrutiny that’s focused on businesses, according to Saxton, and this is a problem because their public image remains stuck in the 1960s. What’s more, this lack of attention will become particularly important as the climate change agenda gains in prominence. This is an area, he says, where voluntary organisations lag behind.

‘Climate change, adds another layer of complexity to charities’ lives,’ says Saxton. ‘It’s seen as an extra burden. But they have got away scot free on corporate social responsibility issues because they think, “We are charities, we don’t have to worry about that. That’s what companies do.” So companies like Marks & Spencer and Sky are way ahead. The question is, “Who’s going to put pressure on charities to catch up?”’

Griffith expects the push to come from the public as individuals make environmental standards a factor in deciding which organisations to support. ‘Last year was a tipping point,’ she says. ‘Climate change was talked about all the time and I think people now believe something needs to be done.

‘We are seeing a lot of the private sector saying, “We are environmentally friendly” as a selling point. The question is whether the VCS is going to be left behind. People expect the voluntary sector to be socially responsible but many VCOs merely focus on their core issues.’

Trewin Restorick, director of Global Action Plan, agrees. ‘Larger businesses are addressing the issue wholeheartedly,’ he says. ‘But overall the charity sector has been quite slow. Charities tend to be outward focusing – they look at delivery and outcomes and less at internal operations and the systems they need.’

In some ways, that’s understandable. Meeting environmental standards is a painful process that costs money and time, resources that charities – and their donors – prefer to earmark for core activities. In the long term, however, as energy costs rise, ‘good carbon management’ will cut costs, says Restorick, while pressure to change will also come from purchasing organisations as environmental audits play a greater role in the contract culture.

Some grant-making bodies are also starting to make demands. Global Action Plan is working with the Baring Foundation and the Esmée Fairbairn Foundation, for example, on how to help the organisations they fund reduce their carbon footprint. And in the future, large voluntary organisations with energy bills of more than £500,000 may be eligible for a government carbon trading scheme.

In general, however, Restorick believes the third sector will struggle to keep up with large corporations as shareholders and younger, more environmentally aware staff demand action from their companies. ‘The profit motive is proving a stronger driver than the moral one,’ he says. ‘For charities, I think it’s going to be a long, slow haul. It’s good that people are starting to think about it, but the third sector is a long way behind.’

Of course, the volatile economic and environmental climates won’t be the only external pressures on the voluntary sector in 2008, as issues such as community cohesion, immigration, the ageing population and other, unforeseen, factors also have an impact.

One thing seems sure, however. If 2007 heralded a new chapter for the voluntary sector, 2008 is set to be a year of change.

Back to Press coverage