Charities use £2.4bn of their own funds to subsidise a shortfall in public sector contracts each year, according to new research from a think tank.
Responding to a survey by New Philanthropy Capital (NPC), 62% of charity leaders said their organisation uses money from other sources such as fundraising to deliver public services for which they have been contracted.
Of those charities that are having to subsidise public services, almost a quarter said they do so every time they deliver a contract.
Based on this research, NPC estimates that the total amount the charity sector subsidises public services each year is £2.4bn, which is more than half the size of the government’s levelling up fund.
“This represents an ongoing and likely unsustainable risk to vital public services which people rely on,” the report reads.
“Some organisations may reach crisis point and have to close services or even the whole organisation.”
NPC reports that the average charity is funding 35% of each contract, with only one-fifth of contracts uplifted in line with inflation.
But the number of organisations who have turned down contracts because the operational risk is too high dropped to 44% in 2023 from 54% in 2020.
‘Failure to act’ may lead to closures
NPC recommends a renewed partnership between government and the voluntary sector.
It says this should be underpinned by new structures and targeted programmes to ensure that charities can meet needs in poorer areas of the country.
The report adds: “Charities and funders also have a vital role to play, making space to think long-term about where they are heading, what risks they face, and if they are using everything at their disposal to meet the next challenge.”
Matt Downie, chief executive of homelessness charity Crisis said: “The experiences of Crisis’ services sadly echoes the report’s conclusions, as we continue to see huge demand as the cost of living crisis continues.
“This is a critical time for charities, with demand for our support at record levels.
“The report’s recommendation of a review of the risks to public services posed by underfunding is a necessary and positive step that we urge the government to take.
“Failure to act now could lead to more organisations being forced to close their doors at a time when people need them most.”
Theo Clay, report author and policy manager at NPC, said the issue of charities being underpaid to deliver contracts needs to be addressed.
“Some organisations may have to close services, or close their doors altogether—leaving people without support and reliant on already over-stretched emergency services,” he said.
“Government needs to reset its relationship with charities.”
Gap between views of charity leaders and public
The latest NPC State of the Sector research also surveyed members of the public, including service users, and compared their views to charity leaders.
It found 83% of charity leaders think they work in the geographic areas where need is greatest “most” or “all of the time”, compared to only 41% of the public.
Charity service users were also more positive than leaders about the diversity of the organisations they worked with.
Some 73% of service users said charity staff were mostly or fully representative, compared to 51% of leaders.
Half of the charity leaders said that they needed to recruit more people from minority ethnic groups, while only 22% of service users said the same.
“One explanation for this might be that users are more likely to interact with staff working in service delivery than charity leaders, as data shows that those who lead charities are not generally representative of the groups that charities support,” the report states.
The leaders’ survey also suggests a decline in strategic conversations, with the percentage of those who have reviewed their mission dropping from 72% in 2020 to 60%.
Meanwhile, just 15% of the public said charities were “too political”, compared to 56% who said they get the balance “about right”.
Some 59% of the public said they wanted the government to work in partnership with charities more.
This is the third State of the Sector survey, following previous editions in 2017 and 2020. The field work for these two surveys was carried out by Savanta.
One survey was of 298 charity leaders and one of 2,062 representative members of the public—including 893 people who have used charity services in the last 12 months.
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