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NCVO/TSRC Big Society Evidence Seminar – 11 October 2010 Session 3: Funding Funding and the Big Society: evidence for policy ma kers Karl, Wilding/NCVO1 1. Context Clearly one of the most contentious issues for the voluntary and community sector in relation to the big society is ‘funding’2: in particular, the concern that the good ideas outlined under the Big Society narrative are the right ideas, but that they will be difficult to implement because of reductions in public spending. This is not new territory. Following a decade of almost continuous growth – we estimate 5% per annum in real terms – it is difficult not to conclude that funding will always be a constraint for the sector as a whole and, for some organisations at least, the defining ongoing management challenge. This short review highlights some of the available evidence around funding and highlights questions for the Big Society agenda. 2. Voluntary sector resources: key trends and chara cteristics Issues of definition inevitably cloud any discussion of resource levels, but using a core definition of the sector we would identify the following funding trends and characteristics as relevant to this agenda:

o Expansion. Overall, funding has increased more or less continuously over the last decade. Early filing for the period covering the recession (2008/09) indicates that half of the sector experienced an increase in income.

o Distribution. Success has not been equally shared: 145,000 general charities share just over 6% of the sector’s total income. Tens – possibly hundreds – of thousands of ‘Below the Radar’ community groups and associations deploy resources below the threshold for formal regulation.

o Scale. Although fast growing, the sector is in some respects small. Our core definition of the sector3 is equivalent to 2% of public expenditure. The median annual income of a ‘major’ charity is £19m.4

o Income sources. Statutory sources account for 37% of total income, almost £12.8bn. This is almost equivalent to the amount the sector receives from individuals (£13.1bn). These are the two major growth areas over the last decade, although our survey of individuals’ giving indicates a dip in this source.

o Income types. Earned income – which includes contracts for delivering public services – has driven growth. Since 2003/04, the sector has ‘earned’ more than it has been ‘given’ (2007/08: £17.4bn; £14.9bn). In addition, the sector generates income from investments assets (£3.2bn), a relatively static income stream.

1 Karl Wilding, Head of Research, NCVO: www.ncvo-vol.org.uk/almanac 2 Definitions are clearly relevant here and as such funding is increasingly inadequate to describe the widening range of options that might be employed to resource organisations. 3 Our core definition of the sector – general charities – indicates a total income of £35.5bn. A wider civil society definition including coops, housing assns, trade unions and universities indicates a total income of £157bn. 4 We define major charities as those organisations with an income of more than £10m per annum.

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3. Reflections 1. Scale and distribution The uneven distribution of resources, together with some quite contested views about big charities (and too many charities per se) highlights a conundrum for big society policy. On the one hand, the knowledge that the smallest groups and associations can achieve a lot with small amounts suggests funding needs to be redistributed and that we need an associational revolution akin to that of the late nineteenth century. On the other, (American) writers such as Steve Goldberg and Dan Prives argue that capital is too fragmented and organisations too amateur, and the solution is to scale-up fewer, bigger organisations in order to do the ‘heavy lifting’ of service delivery. Mutualisation and charitisation of the public sector landscape may complicate the funding picture for some organisations as the playing field for sources such as foundation grants or donations is widened. 2. Cuts and resilience It is difficult to reach any other conclusion than that a decade of growth has led to a bigger sector, but not a stronger or more resilient sector. Cuts in public expenditure are already biting, with significant nervousness regarding the CSR settlement and the timing of any implementation. A 40% reduction in statutory income– whilst unlikely – represents a withdrawal of £5.1 bn. A 25% reduction is equal to £3.2bn. Such funds are largely concentrated in a core of 40,000 voluntary and community organisations, many of whom deliver publicly funded services. The impact of such a funding withdrawal is likely to have an echo effect as organisations then look to other funders or sources. Our evidence indicates that operating charities hold free reserves equivalent to an average of 8.5 months worth of expenditure. Those organisations receiving government grants or contracts – in other words, those likely to be delivering services – hold an average of 4 months’ worth. One third of operating charities do not hold free reserves. 3. Funding for organisations, or contracting for se rvices? Much of the growth – and resource deployment - in the sector has been driven by public service delivery. Of 780,000 people employed in the sector, over half are engaged in the delivery of social care. The implications have been a shift from grants to contracts, rationalisation of suppliers, and importantly a decline in support for ‘voice’ activities. There is now a significant evidence base in relation to the barriers for greater involvement in service delivery: the current focus on efficiency and measurement needs to learn from this evidence base. Scaling up citizen participation and engagement (the subject of a related paper) will need to take into consideration the fact that many organisations’ main funding is now for the delivery of services, rather than for the provision of voice. 4. Accessing new forms of social finance. We estimate that the sector has £2.9bn in outstanding liabilities that can be classed as loan finance – predominantly mortgages secured on buildings. Data on loan finance for purposes such as working capital is much harder to find; but the size of investment via the main social finance institutions, and proposals for the new Big Society Bank, would indicate that there is a considerable distance to go to scale up new forms of finance to replace the potential reductions in public spending. Perennial problems related to measurement and the balance of risk will also need to be considered as the sector moves towards funding models based on payment by results.