What are the trends in income from government?

Overview

In 2019/20, government remained the second largest income source for the sector, behind the public. Income from government stands at £15.4bn and makes up 26% of the sector’s total income.
Income from government includes income from:
- central government departments
- local authorities
- devolved and regional government
- the EU and international governments
- town and parish councils
- NHS trusts
- a range of non-departmental public bodies (NDPBs)
The income from government generally goes directly from the government body to the voluntary organisation. There are sometimes more complex arrangements such as subcontracting, match funding and direct payments to the beneficiaries, but this is much more difficult to identify in the data.
The majority of government income came from contracts to run public services and for fees provided by charities, which made up £11.6bn or 75% of all income from government. The remaining 25% came from grants worth £3.8bn.

Income from government makes up a quarter of the sector’s income, of which three-quarters was contracts

Over time

Compared to the previous year, income from the government fell by £684m or 4% in 2019/20. As both a proportion and in real terms, income from government rose from £11.4bn in 2000/01 and peaked in 2009/10, making up 37% of all income or £17.9bn.
Since then, government income fell consistently as an amount and more dramatically as a percentage of all income.
Contracts made up half (49% or £5.6bn) of all income from government in 2000/01, peaking at £14.5bn or 82% of all income in 2010/11. From then until 2017/18, contract income fell by £3.4bn or 23% to £11.1bn, though has increased by £500m since then.
Grant income rose from £5.8bn in 2000/01 to £7bn in 2003/04 but halved to £2.9bn in 2012/13 and fluctuated between recovery to £5.3bn in 2017/18 and falling to £3.8bn in 2019/20. Recent falls will likely be reversed by emergency grants from covid-19 pandemic.

Government income has broadly plateaued over the last decade while falling proportionally over time

By source

Central government income made up roughly half of government income, worth £7.2bn 2019/20. Most of this (72%) was from government departments and 24% from the NHS.
In 2019/20, income from central government fell slightly by 3% (£220m) to £7.2bn. Over the past decade, this has kept roughly between £7bn to £8bn every year.
Income from local government was £6.9bn in 2019/20, falling 9% on the previous year. This is part of a gradual decline after peaking in 2007/08 with £9.4bn - a fall of 26% to 2019/20.
Large, major and super-major organisations (income above £1m) received 86% of both central and local government income.

Over the last decade, central government funding has been relatively steady while local government funding has declined steadily over time

By size

Smaller voluntary organisations receive both a much lower proportion of their income and share from government. Micro and small organisations (income below £100,000) received 12% of their income from government and less than 2% of all government income.
Bigger organisations depended more on income from government as a proportion of their total income – 23% for medium, 29% for large, 30% for major and 21% for super-major organisations.
As a share of the total, major organisations (income between £10m to £100m) took 37% of income from government while large organisations had 30%. Organisations with an income of over £1m had 87% of all income from government.

By subsector

Voluntary sector organisations working in social services received the largest amount of income from the government with £5bn or 38% of their total income, followed by health with £1.7bn or 27%.
Other subsectors received a much higher proportion of their income from government. The highest was employment and training (54%) followed by playgroups and nurseries (43%) and law and advocacy (42%), most of which was contracts.
There was a significant decline in income from government in 2019/20 for social services (-£487m) and health (-£480m). This was partially balanced by a rise in income for religion (£190m), environment (£175m) and education (£90m) subsectors.

Public services & procurement: upcoming procurement legislation

In 2019/20 charities saw a decrease in government income, both from central and local government, driven by a fall in income from grants. The period captured only covers the very start of the pandemic, so it is likely that this doesn’t capture much, if any, of the increased grant income we would expect to see in next year’s Almanac. This is in line with a long-term fall in the sector’s income from government, despite a small increase in income from contracts.

Alongside the impact of coronavirus support measures, in future years Brexit will continue to be a major factor in shaping charity income from government. The government’s procurement bill aims to take advantage of Brexit by providing more freedom when contracting services. The green paper which preceded the bill last year set out the aim to “unleash opportunities for small businesses, charities and social enterprises to innovate in public service delivery”. The bill is currently progressing through parliament and is likely to become law by early 2023. However, much of the success of the bill will be determined in guidance, and whether commissioners start to take a different approach is yet to be seen.

Contracts can often be difficult for smaller charities to access. Aggregated large contracts are too big for them to bid for, and only a few large suppliers can only meet onerous. The Almanac will give us an insight into whether the attempt to make contracting more flexible and accessible has been successful in future years.

We should also expect a shift from international funding towards domestic in the years ahead, as EU funding starts to be replaced by the UK Shared Prosperity Fund. The scheme will be worth £1.5bn a year by 2024/25, though that funding will go to a range of providers including charities, social enterprises, and other private sector providers.

Probably the single biggest challenge for charities delivering contracts in the current environment is rapid rises in inflation, making it more expensive for charities to deliver, while not necessarily being reflected in the income they receive. Funders will need to think about how they can make delivery realistic in this rapidly changing context.

Putting it into context

Income fluctuations

Fluctuations in income from government for the sector have historically been in line with departmental spending, with public spending cuts often happening at the beginning of spending cycles.

This year’s Almanac data covered the third year of the 2015 spending review period, which set out £18bn of cuts to departmental spending by 2020. The continuing small reductions in overall funding from government in the previous year is consistent with those spending review reductions.

Income distribution

The continuing uneven distribution of income from government across different-sized voluntary organisations reflects the trend towards the commissioning of large-scale contracts.

Major organisations, which receive the largest proportion of income from government, are more likely to have the resources and capacity to bid and deliver large scale public service contracts.

The Road Ahead

UK Civil Society Almanac 2022