Can the third sector do more with less?

The UK may have finally emerged from the longest recession since the second world war but for the charities, voluntary organisations, social enterprises and other groups that comprise the third sector, the "double whammy" of increased demand on services and reduced income continues to hurt. Many of these groups have played a key role in helping people deal with the fallout of the recession, from unemployment and debt to homelessness. However, reductions in public and corporate giving combined with predicted public spending cuts spell uncertainty for the sector, whichever govern­ment is in place after May. Anecdotal evidence suggests that cuts in the third sector may be even worse than predicted, with some organisations reporting that local authorities are planning to slash their core funding by at least 20% and up to 50%. Meanwhile, pressures on public sector spending are expected to impact on councils contracting out services, which has driven much of the third sector's growth in recent years. Dealing with the challenges of funding cuts in the third sector was the focus of a recent roundtable discussion convened by the Guardian in partnership with Navca (the National Association for Voluntary and Community Action). This umbrella body for local infrastructure organisations – such as councils for voluntary service – supports local third-sector organisations through training, advice and campaigning. The event was conducted under the Chatham House rule, which guarantees anonymity to encourage frank debate. This report therefore reflects the themes discussed, without attribution. Latest research by Navca shows that the impact of recession is yet to be fully felt. Nearly 80% of its members believed that 2010 would be worse than last year for the local third sector. In March 2009, members said local groups most needed support around producing assessments to help them gauge the impact of recession on their organisation, and guidance on how to tackle potential problems (eg cash flow issues or staffing). In January 2010, practical support topped the list, in particular help with fundraising and advice on how to work in partnership with other local groups (including collaboration to win public-sector contracts). The findings back up the latest quarterly poll of charity leaders conducted by the National Council for Voluntary Organisations (NCVO), which shows 77% of respondents believe economic conditions within the voluntary sector will be negative for the next year. Yet despite the recession, 93% of charity leaders said they are planning to maintain or increase services to ensure greater demand for provision is met. The London Voluntary Service Council, which is currently surveying third-sector groups in the capital to assess the impact of recession, refers to a "clear psychological fallout" in terms of mental health and wellbeing, which the sector is having to manage. Psychological fallout Most delegates agreed that the prognosis for third-sector funding was not good. Volunteer centres are facing a 50%-100% increase in people wanting to volunteer because they have lost a job or want to retrain. Citizens advice bureaux are reporting unprecedented demand on their free advice services. Many participants were concerned about the uncertain nature of funding cuts. "Are we going to see the salami slicing of [departmental] budgets or cuts targeted at the [third] sector? We've shuddered at cuts of 5% before; this time we might be looking at cuts of 20% or more," said one. Most were concerned that funding cuts would scupper the valuable work that the third sector is doing to help the nation recover from the recession. "Volunteering has a really big part to play in helping recovery. But volunteer centres are finding it difficult to cope with demand and are struggling to keep afloat,"said another. A major concern was the emerging "pattern of disinvestment", which one participant felt would "undermine the philosophy" coming from the major parties about the importance of the sector. The reality is there is a "big danger that the public sector abandons the hardest to reach to meet their targets". There were fears too that, faced with having to make budget cuts, funders would be forced to prioritise one disadvantaged group over another. Funders should keep equality issues high on the agenda, urged one participant. Many participants felt that the sector was already being "asked to do more on less". As one explained: "What we're hearing is 'We want you to achieve 15% cuts but also the same outcomes.' But contractors will not be able to reach the deprived groups that local authorities want them to reach." One participant talked of "vulnerability" of organisations in the downturn, not just related to job losses but to the organisations' "very continuation". There was concern about regional differences in the funding cuts landscape. For example, third-sector organisations in the north of England "will feel [cuts] the hardest" because of prevalence there of public-sector grant programmes and "disappearance of regeneration funds". Three-quarters of charities receive no government income, although medium-size and large charities – particularly those delivering employment, housing and social services – now make almost 40% of revenue in this way. Contracting has been a major driver of third-sector growth in recent years. But not all participants agreed that this was a funding solution. "We're seeing more smaller organisations get together to win contracts but they're doing it to chase the money. Those partnerships are not necessarily based on strong foundations." Mission drift Not having so much money in the pot could lead to more competition, thought one participant: "This might mean that some organisations decide to go off on their own, where they should be working collaboratively." The sector "has bent itself" around the national government's agenda and many organisations "have forgotten why they exist". There was, many felt, a real danger of "mission drift". At least one participant thought larger organisations might diversify services to win contracts, so squeezing out smaller, more specialist groups. The government's personalisation agenda – giving health and social care patients greater choice in their treatment and care – was seen as both an opportunity and a threat for the sector. But as one participant warned: "If the government really wants personalisation, there are real issues around capitalisation of the sector and of skills on a large scale." Building better partnerships was a recurring theme of the debate. One participant said the sector and its funders could work together more closely to find solutions to cuts. For another, having council leaders who believe in a partnership approach was vital: "The political landscape sets the landscape for what officers will do." Some cited the Total Place pilot scheme as a possible blueprint. This government-led project brings together local councils, primary care trusts, third-sector groups and other agencies to provide cost-efficient local public services without duplication – dubbed the "whole-area" approach. While it was recognised that grants are core to the funding base of many third-sector organisations, some felt other income sources could be better exploited. "As a long-term strategy issue, the sector needs independent sources of funding," said one speaker. For example, government could "promote investment" in the community foundation network. Loan finance – and particularly government plans for a £75m Social Investment Wholesale Bank to be funded largely from dormant bank accounts – was another opportunity but "a lot of small organisations are not aware [of it] and are scared about what it brings." It was felt that the sector needed to get better at demonstrating its contribution to the country. "We don't have a language to describe the impact of the sector, like GDP," said one. "We need to show the impact on improving health and wellbeing but it takes a while to show this." Another said: "We need to be much more savvy about demonstrating the impact of what we do and how essential it is – not just on the margins but in everything. If we can show just how vital voluntary action is, [funders] will think twice about cuts." The third sector remains in limbo as it waits for a general election and for local and central government to finalise its spending plans for the coming years. But as one participant suggested, this did not mean that it was completely powerless: "We need to get better at working out where the cuts fall and work together to find ways to fill them." And for at least one, new partnerships and innovative service delivery mechanisms were to be welcomed: "The sector could become more radicalised. It might become smaller but a bit more spiky." • This Guardian roundtable was hosted to a brief agreed with Navca