Nearly one in five council leaders in England say they are likely to declare bankruptcy in the next 15 months. Councils are consulting those who live in the local areas on what they deem ‘essential’ in an effort to find money to save and to prevent charities from losing what little funding they may get.

But how did we get here? The money councils receive from central government underwent a real-terms cut of 40% between 2010 and 2020. That’s without the added pressure of inflation and the pandemic.

Hampshire County Council is one example. It faces a financial gap of £132 million and has plans to withdraw all funding for homelessness services. This is in addition to asking an estimated 4,000 more people to contribute to the costs of their social care.

Birmingham City Council have, at the time of writing, made ‘devastating’ cuts in a bid to cure its funding woes, including the scrapping of almost all of its arts funding, 11 community centres being sold off and that’s just the tip of the iceberg.

Tony Armstrong, CEO of Locality, which supports local community organisations, is witnessing how the frontline services are bearing the brunt of cuts. “In Birmingham and beyond, local people are bearing the burden of their councils’ financial woes. It is these very people who face losing vital public services and valued local buildings.

“Selling off community assets may provide a short-term financial boost, but it inflicts lasting damage on our communities. Once these spaces are lost, they’re lost forever.”With more councils expected to follow in Hampshire and Birmingham’s footsteps, charities are warning of the devastating knock-on impact these financial crises will have, with some of those impacts already being felt.

Intertwined fates

Unfortunately, it’s not as though there haven’t been signs and discussions about the subject in recent months, or even years.

According to Pro-bono Economics, between 2009/10 and 2010/21, it’s estimated there has been a £13.2 billion fall in council funding to charities. The research found that almost three in ten charities that work with councils believe local government funding will drop over the next 12 months.

Because of this, the survival of many third sector organisations is under threat as two in five charities that work with councils say grants and contracts are “critical to their operations”. In addition, more than seven in ten councils surveyed are tenants of councils, the think tank’s research adds.

It is estimated the financial crisis in local government “is a moderate to high risk” for more than half of charities that work with councils. Money from councils is currently worth 13p in every £1 of charity incomes.

“The fates of councils and many charities are entwined, and when one partner goes into difficulty, the other struggles too,” says Jansev Jemal, Pro Bono Economics director of research and policy.

“Charities have already seen significant withdrawal of support from local government over the past decade, and the current difficulties in local government finances mean that the loss will continue to grow.

“These cuts are being announced at pace, and charities across the country are anticipating further escalation in the months ahead.

“The hidden impacts of the council funding crisis matter too. Charities are being evicted from their council premises, or forced to reside in unsuitable buildings, where roofs are falling in and floors are deemed unsafe.

“This will generate extra costs and disruption to charities at a time they can ill afford it, and hit the people who rely upon them the most.”Evidence of this has already been seen in the Thurrock council area, which declared bankruptcy in December 2022 after a deficit of £500 million. Yewande Kannike, CEO of One Community in Tilbury has seen the only pub in the area close, the only leisure centre and the only inclusive community centre. “We took signatures of 700 people who said they didn’t want the leisure centre to close [...] it has been sold off and they put a tiny community space that is not fit for purpose.”

There was hope that an old fire station, which was subsequently demolished, would be made into an inclusive community space out of the government’s Levelling Up fund. The proposals were designed with a integrated medical centre in mind, in partnership with the NHS, but news in January 2024 came and the NHS pulled out because of funding issues.

Now, the council is “reassessing the land to see if it can be retained, repurposed or removed”. Kannike is hoping to talk to the council to see if a community organisation could purchase it. “The ball is in their court,” she states, but admits that they will likely want to sell it for profit.

It’s not only smaller charities affected, either. Citizens Advice said the crisis was putting voluntary services at risk.

Dame Clare Moriarty, chief executive of Citizens Advice, explains: “As our advisers see increased numbers of people in dire situations, unable to afford basics like housing, energy and food, our work has never been more important. But our ability to make a difference in communities depends on funding.

“Local government has been a crucial funder for charities like Citizens Advice, so the current crisis is deeply troubling. We’ll continue working to make sure we can be there for as many people as possible. But it’s vital the government considers the devastating knock-on impacts of local authority funding cuts on community services.”

Chronic underfunding This isn’t the only evidence of impact of funding cuts on UK charities. A recent survey by the National Council for Voluntary Organisations (NCVO), revealed that almost nine in ten charities carrying out public service work are having to subsidise underfunded grants and contracts.

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.

Last year, NCVO was among other sector infrastructure bodies to send a letter to Chancellor Jeremy Hunt signed by 1,400 charities calling for urgent measures to tackle underfunding in contracts and grant making by the government. It warned that contracts do not have inflationary increases built in and have been eroded in recent years through the cost-of-living crisis.

In the days before writing, NCVO has received a response to their concerns from Chief Secretary to the Treasury, Laura Trott, who said that the government “understands that cost of living pressures are impacting many organisations across the voluntary sector, who are seeing increased demand and higher running costs”. She cited measures in the spring budget of 2023, but organisations have already pointed out how this funding is not flowing down to charities on the front line.

NCVO says that while Trott’s 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”.“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.”

What next?
But what is the solution, if there is indeed one at all? Armstrong urges councils to think carefully about the decisions they’re making.

“We urge local authorities to think carefully, involve local people in decisions, and consider the long-term consequences of losing local services and spaces. Transferring ownership to the community so they can be run for the benefit of local people can be a hugely valuable solution - we see every day how community-run services and spaces can transform lives and help communities thrive.

“The government can make this all much easier by introducing a Community Right to Buy, and pass more power over local buildings, services and spaces to the local people who need them most.“

Kannike agrees, urging councils to work with charities to see if they can repurpose or sell land to community organisations seeking space for their work. Often, the demand is already out there to be met.

Undoubtedly, there’s a lot of uncertainty ahead for councils and their relationship with charities. The general election has yet to be announced, but with one likely to crop up later in the year, there’s hope that a new government may be able to do something about the problem. However, it’s unlikely that they will be able to find a magic money tree and provide funding for every council that needs it, so charities will have to look for other sources of income.

Organisations who rely on funding from councils should, if they haven’t already, look to diversify their income. New funding streams will be essential for survival as the purse strings tighten. Charities will have to take a long, hard look at their finances and any reserves, plan for the years ahead and in all likelihood, plan for the worst. But what is clear, is that if the government, local councils and charities bury their head in the sand, who knows how many organisations will be lost in the years to come.

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