What is the true cost of giving support to public services?

Our Cost of Giving Crisis campaign highlights the desperate challenges facing charities this winter. We’re focusing on each reason for this crisis – calling for immediate action from government and highlighting the support available to charities.

The Cost of Giving Crisis is, in part, caused by the knock-on effect of years of austerity and underfunded public services. Not only has this deepened need in communities and exacerbated inequalities, but it has forced public sector purses to tighten like never before.

Our latest survey of voluntary organisations reveals that with the funding they receive, 73% of charities can’t meet current demand for the public services they deliver. While underfunding is not a new problem, the impact of continued high inflation has put charities delivering public service contracts at crisis point.

The options are bleak: charities will either stop operating completely, cease delivering much needed services, or use charitable funds to subsidise public services.

To put it simply – there is no other option. Charities and voluntary organisations provide vital support to people and communities. With charities delivering £16.8 billion worth of public services each year, there are millions of people at risk of not having their needs met if support isn’t given.

As shown in this 2022 report commissioned by the Department for Culture, Media and Sport, many types of services, such as homelessness services and support for victims of domestic violence or sexual abuse, are predominantly provided by charities.

No one else could do this better. Charities are best placed to deliver services in partnership with the public sector, bringing specialist knowledge and strong relationships with the communities they support. Almost one in five of our survey respondents said their services are run by and for people with lived experience.

Government has heavily relied on charities to deliver vital services – it’s a core way to fill gaps in services or offer specialist support. But charities have said for over a decade that contracts and grants aren’t keeping up with inflation or meeting the true costs of delivering public services.

Many contracts never did, with 40% of charities saying their grants/contracts never covered the true costs of delivering, while a further 44% said that their grants/contracts have not covered their costs since at least 2020.

The spike in inflation since 2021 has made this situation worse. Since April 2021, less than one in five survey respondents (17%) had received uplifts to all or a majority of their grants/contracts. Almost half (44%) had not received any uplifts at all, and 38% had seen a minority of their grants/contracts uplifted.

Where there were uplifts, our survey reveals that charities saw an average uplift of 2.7% across all their grants and contracts from 2022 to 2023. Compare this to the annual consumer price index inflation rate reported in April 2023 of 8.7% and the problem is clear. If an organisation received anything less than an 8.7% uplift to their grants/contracts from 2022 to 2023, this was a real-term annual cut to their funding.

Simply put, charities are being asked to meet today’s levels of need, with 2023 cost overheads, based on contracts and income priced many years ago.

Charities desperately need the generosity of public donations. However, charities are being forced to subsidise underfunded grants and contracts with their own:

• donations and legacies (67%)
• enterprise and trading income – for example, from charity shops and cafes (25%)
• new or increased charges for people using their services (15%)
• income from investments (15%)
• reserves (11%).

1. Services are harder to run. Underfunding is making it harder for charities to invest in the people needed to deliver good quality services. 83% of the charities we surveyed said it’s more difficult to recruit and retain staff, while 39% are reducing staff numbers.
2. Restricted opening hours could reduce access to services, and 39% of charities said they are changing the types of referrals they will accept.
3. Many charities are stopping delivery. 31% said they decided not to bid for a new grant or contract or are considering not bidding. 26% have decided not to retender for services they currently deliver or are considering not retendering. 12% have handed back a grant or contract before it finished, or are considering doing so.

We urge to government to take the following steps.

1. Increase long-term funding to all public bodies grants and contracts meet charities’ true delivery costs.
2. Require long-term funding is used to uplift all existing and new grants and contracts to fully cover the costs of delivering public services.
3. Establish better oversight and awareness of the state of public services, including through increased responsibility for this within the Cabinet Office.
4. Take a wider and more holistic view of what constitutes ‘financial distress’ for providers, and encourage all public bodies to do the same. This would allow commissioners to take action before providers are forced to step away from public service delivery.
5. Work in true partnership with voluntary organisations, increasing both collaboration and innovation in service of communities, and encourage all public bodies to do the same.

We need immediate action. Ahead of the autumn statement, we’re calling for urgent intervention from the government to ensure grants and contracts cover the true cost of delivery.

You can help by signing our open letter to the chancellor calling for support. The more people that unite in signing our letter, the greater impact we’ll have.