A coalition of more than 50 charity organisations is calling on Chancellor Jeremy Hunt to bring in urgent measures to tackle underfunding in public service delivery contracting and grant making.

The Civil Society Group, whose members include the NCVO and Charity Finance Group, warns that underfunding is leading to charities having to turn people away for support, shorten their opening hours and deal with fewer complex cases.

“This reduces the level of need that is met in the local area,” warned the group.

Charities are also struggling to offer competitive wages to attract and retain staff due to underfunding. This will lead to many charities opting out of this work causing “a shrinking provider base, which drives down quality, choice, and innovation”, it added.

The government is being called on to increase funding to public bodies to ensure they can uplift public service delivery grants and contracts.

They point out that charities are “a critical partner” in public service delivery, providing £16.8bn worth of public services in 2020/21, across social care, health, employment, and training services. From 2016 to 2020 they delivered more than two thirds of homelessness support and two thirds of commissioned services to support domestic abuse victims.

However, these contracts often do not have inflationary increases built in and have been eroded in recent years by rising costs.

A survey of 300 charities by NCVO found that two in five said government grants and contracts “never covered the true costs of delivery services”. One in ten said underfunded contracting had been taking place for more than a decade.

‘Thinly stretched’

Seven in ten charities have either handed back a grant, not retendered for the work or decided not to bid for a new contract or grant.

“Charities are an essential part of the social fabric in communities, the economy and the public services ecosystem – but they, and critically the people they support, face increasing risks of having to cut back services,” said the group in a letter to Hunt.

“The immediate consequences of contraction in charity sector activity will be felt in already very thinly stretched public service delivery.”

It adds: “The risk that contract and grant underfunding poses to public services across the country should be of urgent concern to the Cabinet Office and Treasury, as well as to all departments with policy responsibility for an area of public service delivery.”

The Civil Society Group’s letter also called on Hunt to introduce an ‘essentials guarantee’ embedded in the benefits system to protect people from going without essentials.

In addition, the Chancellor is being called on to streamline and review charity taxation. This includes tackling the issue of irrecoverable VAT for charities and reintroducing their VAT relief for the installation of energy saving measures.

“The cumulative effects of the cost-of-living crisis on the back of the pandemic continue to put household income in a precarious position,” said Charity Finance Group chair Richard Sagar.

“The weight of this is falling on charities and voluntary organisations that are already dealing with a surge in demand and rising costs. And the surge in both demand and costs will not ease any time soon.”

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