The government cannot tell charities they must compete for contracts in a market while slashing the spending power of the only paying customers, local authorities, says Kathy Evans.

As July’s Emergency Budget nears and the Government’s departmental budgets for this year start to become filled out in more detail, most people I’ve met lately in both public and voluntary sector services have adopted a ‘rabbit in the headlights’ expression of panic and incomprehension on the subject of what really lies ahead.

We are now entering year six of deep cut upon cut to local councils, each sweep of the financial scythe hitting the most deprived areas of the country the hardest of all. In children’s services, the council cuts are only compounded by recent DfE announcements that their commitment to protect schools budgets will leave ’non-schools’ areas of the budget bearing £450million cuts this year alone.

This disproportionate impact on ‘non-schools’ areas has also been the case every year for the last five years. ‘Non-schools’ is a pretty un-emotive, bureaucratic term for describing the reality that all of Nicky Morgan’s departmental cuts will fall on disability and special educational needs, children in care and child protection. Again.

And what does this mean for charities? On Monday this week, NCVO and the Children’s Partnership revealed their analysis of the state of the children’s charity sector, with a specific report of facts and figures drawn from within the brilliant new edition of the Civil Society Almanac. Children’s charities lost over £150 million in government income last year, the steepest losses in government income for any part of the voluntary sector.

Far from flourishing entrepreneurially in the ‘vacuums’ left by statutory service reductions and funding withdrawals, and despite welcome increases in donor fundraising that we should all celebrate, the children’s voluntary sector is directly mirroring the financial attrition and service retrenchment that civil servants are having to manage, both locally and nationally.

For many of my members and professionals right across the children’s sector our primary campaigning concern is for the children who, contrary to political promises, are paying a severe price for our nation’s economic mistakes. Children England certainly shares that sense of urgency and moral alarm at the failure to protect our most vulnerable children from the impacts of austerity.

There is, however, a more direct and pure economic challenge that should be brought to the many Ministers and other influential decision-makers who, in my experience, are quite genuine and heartfelt in their belief that competitive markets will improve and transform public services. 

Any true market advocate or entrepreneur must know that a market without paying customers isn’t a market worth entering or staying in. In public service markets, and particularly in children’s services, those paying customers are local authorities. Savaging council spending power is the quickest and surest way of collapsing the markets that compete for their custom, including charities, large and small, right across the country.

Service ‘markets’ for poor and vulnerable people who cannot afford to pay for the help they need by themselves simply cannot spring up and thrive in the absence of council spending. Councils are their primary customer – and in some service areas, like foster care and residential care, the only possible paying customer. Cut their spending power and you hasten, if not guarantee, the eventual collapse of the market.

There are strong indicators that we are already at that brink, certainly in adults’ and children’s social care. Far from being new or recent, competitive markets have been operating ruthlessly in the industrialisation of care for many decades now. The profits have been drained out of them, private investors are now scared of them. Insurers are backing away from them. Private sector contracting giants, always assumed to be profiteering at will from the care industry, are now reporting losses in them.

It must be seriously considered that market forces have been a significant part of the problem, not any solution at all, with critical lessons to be learned for other public service marketplaces and the commissioning models that shape them. But one need not be ideologically opposed, or even sceptical, about market competition in public services to know that the Government’s strategy of continuing council cuts is a bad idea. Indeed, if you believe passionately in the power of market forces then you will know better than anyone else that taking money out of customers’ pockets is very, very bad for business.

Kathy Evans is the chief executive of Children England