Survival mode: Scotland’s third sector fails to grow

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Scotland's third sector is failing to grow and financial optimism is rock bottom

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22nd February 2017 by Susan Smith 0 Comments

The economy of Scotland’s third sector is failing to grow and just 1% of people working for Scottish charities are optimistic about the financial future.

New figures compiled by the Scottish Council for Organisations (SCVO) show that just 53% of Scottish charities saw their turnover go up last year and the average increase was far below inflation at just 0.0001%.

The majority of the growth was recorded by organisations with an annual turnover over £500,000 and smaller charities recorded an overall reduction in turnover.

A recent SCVO survey of people who work for Scottish charities also reveals financial confidence is at rock bottom. Only 1% of people working in the sector believe the economy of the whole sector will improve and only 12% believe their own charity’s finances will improve.

The survey also reveals that 41% of organisations are unable to plan ahead because of inadequate and short-term funding problems. A further 32% claim they are unable to plan ahead for more than 12 months.

With 72% of organisations expecting demand for their services to increase in 2017, SCVO says the sector has gone into “survival mode”.  It suggests organisations are getting by rather than developing.

SCVO's director of public affairs John Downie said: “Our research clearly shows that Scotland’s third sector has given up on the idea of growth and has gone into survival mode.

“Organisations feel they will have to do more with less as demand for services increases at a time where funding streams are squeezed. There is a strong expectation of growing competition to secure unstable hand-to-mouth funding and this is hampering the sector’s ability to develop.”

Cuts to public funding are a major worry for voluntary sector staff who responded to SCVO’s survey.

An education charity with a turnover under £100,000 said: “We expect a continued reduction in local authority funding support, an increase in competition for grant funding from within the third sector and an increase in the need for the services we provide. We will be in a similar situation to many others in that the resources available to provide the support will be further reduced.”

A large disability charity said: "We face challenges including funding, staff rentention and accessing core funding. It's a real mixed bag from funders about how they treat and consider full cost recovery.

"The very restricted public purse comes at the same time as an increase in the needs of the individuals we support. We will have to consolidate existing services in 2017 and upskilling staff to enable us to increase our ability to pick up work." 

SCVO is now calling for the Scottish Government, local authorities and other funders to help the sector by awarding fairer funding packages.

“Given the relatively small amounts of money the sector relies on, an increase in funding is not necessarily required to improve things,” said Downie. “We know it’s possible to provide more stability and security to third sector bodies with more straightforward funding processes and three or five year awards.

“SCVO has been calling for funders to commit to long-term funding for decades. It’s time to move on from empty promises to actual solutions.” 

The call was echoed by Nigel Henderson, the chief executive of mental health charity Penumbra (see box).

“In terms of a better way, longer contracts that are more flexible, that allow for service redesign along the way, would help,” said Henderson. “The number one thing I would root for, though, is more trust in the sector to deliver. We know what we’re doing. We’ve got good policies, procedures and practises and we can demonstrate that we are best value in terms of price and quality." 

Scotland's First Minister Nicola Sturgeon is set to address the third sector on its role in Scottish society at the Gathering on the morning of Wednesday 22 February.

Speaking ahead of the event, she told TFN: “The role of the voluntary and third sector cannot be understated and should be valued for its contribution to the Scottish economy and to civic life.

“Support for the sector is an investment in the economic prosperity and social cohesion of communities across the country and the Scottish Government’s partnership approach to working with the sector is something I want to see us to build on, not draw back from.

“We have protected funding in 2017/18 for the core third sector budget and we have invested significantly in third sector organisations. We will continue to work closely with the sector to ensure the support we provide continues to be effective, and more than that, allows the sector to better plan for the longer term.”

Trust the third sector - we know what we're doing

Survival mode: Scotland’s third sector fails to grow

Mental health charity Penumbra has 400 staff working over 19 local authority areas. It has had a turnover of around £9.5 million for the last five years. Its chief executive Nigel Henderson spoke toTFN. 

“In Penumbra, size and growth is not the basic measure, for us it’s more the significance and impact we have with  the people we support. We focus on meeting people’s personal outcomes.

“Over the last five years, we have taken on new services but the fact that income has remained static shows that we’ve had to stop or reduce others. So, it’s some in, some out. Some of the reductions have been very  much driven by cost savings required by local authorities.

“In the case of planning, we mainly get three-year contracts that then have a plus one year option. But those three years seem to come round very quickly, even too quickly for the people who are commissioning. Sometimes, they get delayed and we get an extension but that’s very disruptive for staff because they don’t know where they sit, whether they should be applying for other jobs, or if we lose the tender, whether they will be subject to TUPE.

“In terms of our strategic planning, we have a five year plan but I keep saying to the board that so much of this is dependent on the environment we work in.

“We’re faced with a number of new pressures. Things like the apprenticeship levy will affect us and the increases in contribution employers have to make for pension auto-enrolement. These are all worthwhile things, but they’re very difficult when you have static budgets.

“Our staff turnover reduced markedly between the period of 2008 and 2012. I guess people were just happy to have a job during the initial years of austerity, now it’s 
gone up a bit because there’s more uncertainty about funding and because there’s more competition from other sectors, such as the food and drinks industry and supermarkets.

“But what I’ve noticed most is the increasing productivity levels that we have to expect from our staff. We’re still faced with a time and task culture, where x amount of hours have to be delivered and very little attention is paid to travel time, particularly in rural areas. Sleepovers are a challenge now as well in terms of working time. For staff it’s very difficult and we certainly notice high-levels of stress in our staff.

“In terms of a better way, longer contracts that are more flexible, that allow for service redesign along the way would help. The number one thing I would root for, though, is more trust in the sector to deliver. We know what we’re doing. We’ve got good policies, procedures and practises and we can demonstrate that we are best value in terms of price and quality.

“I’m an optimistic sort of soul. I think there are always opportunities, there are some great things happening in terms of how some areas are commissioning services, being more flexible and creative in their approach, which brings out the best in the sector. When things are heavily specified it’s just more of the same for less, I would like to see more creative, partnership commissioning. I do remain optimistic but it is increasingly challenging.”

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