The True Cost of Delivering Public Services

As we’ve seen from our survey findings, many charities will continue providing public services for as long as they can. Even if that means risking closure. Charities are rarely willing to walk away from the people they support. But the situation is now at crisis point.

Without sufficient payment for the services they deliver, charities will withdraw from the public services market. The implications for communities are dire.

Government cannot let this happen. The voluntary sector is ready to work in partnership with central government, local government, and other public bodies to ensure that communities have the support they need long into the future.

There are many steps we think central government should take. The following recommendations will help improve charities’ ability to deliver public services and meet communities’ needs.

Central government should increase funding to public bodies to meet society’s needs.

The Treasury should work with central government departments, local councils, other public bodies and the voluntary sector to assess needs and allocate funding.

There is clear evidence that current government spending on public services is not enough.

• The Institute for Government and Chartered Institute of Public Finance and Accountancy’s Performance Tracker 2023 looks at the state of nine public services. It found that government spending plans will lead to all public services (aside from children’s services) performing worse in 2027/28 than in 2010.
• The Local Government Association’s response to the Autumn Statement estimates local authorities will face a funding gap of £2.4bn in 2023/24 and £1.6bn in 2024/25. They note this funding would be needed for services to maintain current levels – not to expand or innovate.
• The British Medical Association’s health funding data analysis found that a further £322bn would have been allocated to health services between 2009/10 and 2021/22 if government had maintained historical growth rates in health funding.
• The Office for Budget Responsibility’s Autumn Statement response highlighted central government departments’ real term budgets will be £19bn lower in 2027/28. This is due to a lack of funding increases.

Funding for public services is often not targeted to meet different communities’ needs. A report by The Institute for Fiscal Studies found that funding for local public services is poorly aligned with need.

The voluntary sector has strong and long-term relationships with communities. Charities understand the needs of the people they serve. They could help central government better understand where to target increased funding.

Public bodies must spend additional funding on increasing all grants and contracts to meet the true costs of delivering public services.

This could be set out in Cabinet Office guidance to central government departments. It should apply to both current and future grants and contracts. Evidence shows additional government funding often doesn’t get passed on to providers.

This will help fully cover the true costs of delivering public services. It will also enable voluntary sector providers to focus their charitable resources on playing a wider role in their communities.

They can do this through innovation, advocacy, and connection, instead of subsidising public services.

Central government needs to have a better picture of the state of public service markets and providers’ ability to deliver.

Central government lacks awareness of the overall state of public service markets. Commissioners only see the market for services within their remit.

When charities across the country hand back contracts or choose not to tender for grants, nobody in central government can see the pattern. For example, across different departments or local authority boundaries.

There are some ways local authorities can share feedback with central government on the state of the market for their commissioned goods and services. However, these are focused on very large providers and take a narrow understanding of financial distress (see below).

To improve its view of what’s happening for providers of public services, government could consider different options. These could include:

• introducing a new Cabinet Office role
• introducing new ways for local authorities and other public bodies to feed in concerns
• using data from the new digital platform that will be introduced as part of the Procurement Act.

Government should take a wider and more holistic view of what ‘financial distress’ means for providers of public services. They should encourage all public bodies to do the same.

Central government guidance on corporate financial distress focuses on private sector providers. Managing finances in the voluntary sector can be very different to the private or public sector.

For example:

• increasing demand for support often leads to increasing costs for charities, but not increased income. For example, charities may not be able to charge people to access their services, as this could make services inaccessible to people who need them
• charities report income and expenditure differently to private companies
• cashflow can vary monthly depending on a charity’s activities. Income from donations, grants and other charitable sources can also change unpredictably
• charities are less likely to have resources for fundraising and business development. This is particularly true for small charities.

Underfunded grants and contracts push a disproportionate and inappropriate level of risk onto voluntary sector providers.

Government should publish guidance for central government commissioners. The guidance should help commissioners identify, mitigate and avoid risks to voluntary sector providers of public services.

Government should promote the guidance and issue a procurement policy note to make sure it’s used. This would encourage commissioners to act before providers are forced to stop delivering public services.

Working in true partnership with voluntary organisations will increase collaboration and innovation.

Voluntary organisations operate at neighbourhood, local, regional and national levels. They provide a wide range of opportunities to work closely with all public bodies. They take a person-centred approach to designing and delivering services and improve services by investing surplus income.

Charities have a good understanding of the issues affecting communities and the services they need. They have deep relationships with marginalised communities that are often missed out by mainstream services.

Strong partnership working with the voluntary sector will facilitate better service integration and provision. It will help public bodies to better support marginalised groups and enable better sharing of information and good practice.

Examples of good partnership working with the voluntary sector include the following.

• The Plymouth Alliance model shows how charities and local government can work in partnership to deliver holistic and effective services.
• The LGA has worked with Locality to produce a local government toolkit for partnership working with the voluntary sector.
• In spring 2023, The Department for Culture, Media, and Sport (DCMS) published an action plan for engaging the voluntary and social enterprise sectors in its supply chain.

All public bodies should build on these examples. They should establish long-term, trust-based relationships with voluntary organisations, with the funding to match, for the benefit of their communities.