Small and Medium-Sized Charities: Making The Case

Research and Data Analyst Alex Van Vliet explains what our latest research means for the small and medium-sized charities we fund:

Casual followers of the voluntary sector could be forgiven for thinking charities had replaced politicians, estate agents and Sepp Blatter as public enemy number one. 2015 was a banner year for bad news stories in the sector, from repeated fundraising scandals to accusations of the misuse of public funds. The misdemeanours are of a very few, typically larger charities, but the fallout is hitting the whole sector.

We at Lloyds Bank Foundation have launched two pieces of research that, taken together, begin to challenge what is fast becoming a toxic narrative.”

We at Lloyds Bank Foundation have launched two pieces of research (summarised here) that, taken together, begin to challenge what is fast becoming a toxic narrative. As a funder, we know that the majority of charities – small and dedicated to serving their local community – have quietly been delivering services in an increasingly challenging environment.

Navigating Change, produced by NCVO, uses their unique historical Almanac dataset to show how small and medium-sized charities (those with a turnover of £25k – £1m) have navigated the financial landscape in the aftermath of the 2008 crisis. The findings do not make comfortable reading, particularly for those of us who care about plurality and reach in the charity sector. Small charities are more vulnerable to volatile changes in income, as they are more likely to be reliant on a single source of funding.

The research sets out in stark terms how major changes to the dynamics of this remaining government funding – a seemingly irreversible shift from grants to contracts and commissioned services – have failed to create a level playing field in which small and medium-sized charities can compete for resources.

Funding from local and central government fell by up to 44% for small and medium-sized organisations. It is only the very largest who have been able to manage, seemingly at the expense of smaller providers.

Figure: Change in income from central and local government, 2008/09 to 2012/13 (% changefigure4edit2So if small charities are bearing the brunt of cuts, struggling to compete and remaining vulnerable to the volatility of even single funding decisions, why don’t we just work to help them grow, merge, combine and ultimately get bigger? Churn and change is not new to the charity sector, and while 23,000 closed their doors during this period, another 18,000 opened. It is tempting to view this with sangfroid: part and parcel of the Darwinian market forces.

We can see the value of the charities we work alongside day in and day out, but we also know that this experience is not enough to convince commissioners and policy makers in Whitehall that it matters: that something is lost when great small and local charities are lost. Too Small To Fail, an evidence review from IPPR North also published today, looks at the case for whether or not this matters.

Their research examined the evidence for what sort of value small and medium-sized charities create, and whether it’s distinctive. It found that small and medium-sized charities can play a role that larger charities – and the public and private sectors – cannot.

charities […] can act as a local anchor, engaging local volunteers, building the community’s social capital and offering broad or holistic support.”

The review shows how the charities that are rooted in their community have the understanding and credibility to reach the most disadvantaged. They can act as a local anchor, engaging local volunteers, building the community’s social capital and offering broad or holistic support. As these kinds of charities are reduced or withdrawn, IPPR North identify that deprived and BME communities will be hit hardest. Given the level of ongoing squeeze on public expenditure, particularly at local level, this will get worse for some time to come.

The evidence is not unequivocal: literature reviews show that the evidence is weak that the voluntary sector taken as a whole delivers services distinctively from the public sector. Partly this is due to the huge diversity of the sector: there are 40,000 small and medium-sized charities, and we cannot claim that small is always beautiful. But where effective charities anchor their communities and offer the best route to tackling disadvantage, it is all the more important to ensure they are nurtured and supported.

if we are to help the good small and local not just survive but thrive then we have to focus on reforming public commissioning”

The picture that emerges from the research, however dour, does suggest some important principles for a way forward. At an aggregate level, the contribution of independent funders is dwarfed by both individuals and the public purse – so if we are to help the good small and local not just survive but thrive then we have to focus on reforming public commissioning so what little money there is does indeed reach them. But the foundation sector can offer unique and valuable types of funding: a commitment to long-term grants and providing unrestricted income that can cover the core costs of a small and medium-sized charity. Together, these can give small and medium-sized charities the stability that an organisation needs to deliver vital work effectively.

Secondly, both independent and public funders need to focus on creating long-term resilience. This means looking to find ways of providing support – financial and non-financial – that helps charities build their capacity and capability to diversify their income and better evidence their value and income. At Lloyds Bank Foundation our Enhance and Enable programmes offer additional support to grantees to build organisational capacity.

Our hope is that these two pieces of research will strengthen the evidence base needed for an informed conversation about what has really happened to charities since the crash. But evidence alone will never be enough; we all need to get out and build and make the case, building partnerships, sharing perspectives, highlighting their social and economic value – our support of the new Grants for Good campaign is a part of that.

If we do not make and win this case for small and medium-sized charities, there is a real danger that we will not know what we have lost until it is gone. We must act now to protect their crucial work.


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