Almost nine in ten charities carrying out public service work are having to subsidise underfunded grants and contracts amid the cost-of-living crisis, a survey has found.

The NCVO survey of more than 300 charities found 87% are subsidising underfunded deals with government organisations through other income streams.

Two thirds are making up the difference through donations and legacies, while a quarter are subsidising the cost through their enterprise and trading work.

One in six are having to increase or introduce charges for using their services, while one in ten are plundering their reserves.

Other ways charities are coping with underfunding is to reduce the number of referrals they can accept. This was cited by two in five public service charities.

A similar proportion have been forced to cut staff numbers, while more than a fifth have expanded the duties of volunteers.

“Contracts aren't covering the true costs of delivering public services, let alone providing any surplus to improve support to communities,” said the NCVO.

“Charities are increasingly subsidising public services with voluntary income and reserves. They’re risking their long-term sustainability to meet urgent needs now.”

The survey results come after the NCVO has accused the government of not listening to charities’ concerns around underfunded contracts and grants.

Warning ‘has gone unheard’

The NCVO was among infrastructure bodies that sent a letter to Chancellor Jeremy Hunt signed by 1,400 charities last year calling for urgent measures to tackle underfunding in contracts and grant making by the government.

This warned that contracts do not have inflationary increases built in and have been eroded in recent years through the cost-of-living crisis.

The NCVO has now received a response to their concerns from chief secretary to the Treasury Laura Trott.

Trott said that the government “understand that cost of living pressures are impacting many organisations across the voluntary sector, who are seeing increased demand and higher running costs”.

But while this response outlines “the support charities have been offered” it does “not address the crux of the issue – public service grants and contracts are not properly funded to meet the rising cost of delivering them”, said the NCVO.

“The fall out of years of underfunding is creating a crisis in delivery of these services. People who need support more than ever, will slip through the gaps. This stark warning from the charity sector has gone unheard.”

In November, we delivered a letter to the #Chancellor @Jeremy_Hunt, co-signed by over 1,400 charities, calling for urgent action to address underfunding of public services delivered by charities. This week, we received a response from @HMTreasury.

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— NCVO (@NCVO) March 1, 2024

The NCVO says that ahead of this week’s Spring Budget it will be “continuing our efforts to make sure the ask from charities is heard and action is taken”.

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