In the second of a series of articles on the future of the voluntary sector, Dan Corry examines the role charities play in delivering public services. 

Charities have a lot to offer public services over the next decade but only if they deliver to their strengths, rather than trying to be just another provider, and focus as much on service and contract design as on trying to win contracts.

There is a view that the real point of the charity sector is to channel publicly donated money to alleviating suffering—of the poor or the disabled—and not work to prevent it. The tax authorities in Canada recently judged that Oxfam Canada had crossed the “political” line by claiming the goal of “preventing poverty”. This view not only excludes charities campaigning for system or public spending changes but would seem to question them having any role in delivering public services. But that is simply not the reality today, nor should it be.

Many charities have become key partners in public service delivery, and are now professional, well organised and focused. Some of these charities now receive almost no public donations and have embraced the change, believing that government contracts offer the best opportunity to make a difference to the individuals they support, while also allowing them to scale up.

Others have watched government grant-funding wither away and have decided to enter the game in order to survive. The result is the sector’s income from contracts has risen from £4.6bn in 2000 to £12bn in 2010, according to NCVO. But is it right for the charity sector to be so involved?

From the perspective of public services it makes lots of sense. Worries about producer capture and efficiency led a move away from public services being delivered almost entirely by the same people who paid for them – the local council paying for the housing repairs service and also directly employing the staff to run it.

But as competitive forces were pushed into the system and contracts put out to tender it looked like private, for-profit providers would clean up, something neither policy makers nor the public felt very comfortable with. Charities in particular, but also mutuals and social enterprises, came to be seen as the rescuing cavalry.   

Overall this has to be a good thing. Charities are often much better at relationship transactions; they are trusted more by their users than the private or even much of the public sector, and have the mission-driven motivations essential to the success of such work. Charities can also add value where co-production is important, ensuring that users are involved in the design of services so that they genuinely meet their needs. And they can bring volunteers and charitable income to the party, although using these resources as a sort of subsidy to make their bid keener – and taking work off the public, private or even other parts of the voluntary sector as a result – is a contentious issue indeed.

While charities have had problems with a number of aspects of the new contract state, moves towards contracts with a payment by results element have been useful in focusing charities on what they actually achieve in terms of social impact and at what price and this can pay dividends all round. NPC work for the Arts Council suggests that arts and cultural organisations could access as much as £300m more of public income each year if they prove their wider social impact to non-arts commissioners. Equally, where heritage organisations want contracts, or to attract social investors looking for social as well as financial returns, being able to show what they do really works is crucial.

But the danger is that too much of the sector has become obsessed – for perfectly understandable reasons – with trying to win contracts. If you win a contract in a competitive tender then are you really likely to operate it very differently from another, maybe for-profit, provider?

Charities are rarely able to compete for bigger contracts – especially those that contain large elements of payment by results – due to their inability to cope with the risk and cash-flow issues they present. They end up as sub-contractors, a situation many find very unsatisfactory from a mission perspective (if they don’t agree with the way prime contractors deliver other parts of the service), as well as a business perspective (they have insufficient or unclear expectations about the volume of work they can expect).

In any case, is the sector just a supermarket with rows of outsourcing providers down its aisles for commissioners to choose from? What about shaping the sector, filling gaps in need, advocating at a national level and on behalf of individuals? Rather than being the fall guys for the public sector by taking on financial and reputational risk, or fronting the cuts as they have in arts, this is surely why the sector exists. If charities become too fixated on winning contracts, there is a risk that they take the overall system and aims of public services too much as a given. Instead of arguing for greater access to contracts and a level playing field, is the best move for beneficiaries in some instances to call for wholesale change to the aims and set up of key public services even if this means the charity may not itself deliver the service?

However, charities must help define what success looks like, so the purpose and design of services reflect what they stand for and the incentives for delivering contracts are aligned with their mission. Payment by results may have helped focus charities on impact but it is important to measure the right thing.  For example, in the Work Programme, where part of the payment is made for a job outcome, it is difficult to accurately reward organisations working to develop the employability skills of those furthest from the job market. For any provider in this situation, the financial incentives are against helping those with the greatest need.

The Dickensian approach where the sector’s only role in public service delivery was to pick up those who had fallen through the gaps is hopefully long gone. The danger, however, is that charities get caught in a system that diverts their energies to the wrong place, as Fiona Sheil argued in a recent NPC paper.

Charities have a potential big ‘in’ to public services delivery because of their strengths but it is where charities do it better than others that they should be winning and doing the work over the next decade.  That means grasping the debate about the purpose of public sector services, how they are designed, assessed and measured now.

Dan Corry is chief executive of charity think tank and consultancy NPC. He is a former Downing Street and Treasury advisor to the last Labour government.