Public sector grants to charities could disappear completely by 2020 if their rapid rate of decline continues, a group of leading voluntary sector organisations has warned.

Formed under the Grants for Good campaign slogan, the group, which includes the Charity Finance Group and Directory of Social Change (DSC), is looking to persuade councils and Whitehall departments that grant giving should once again be a staple part of their relationship with charities.

But latest figures show the tough task facing the group. Between 2003 and 2013 the total value of public sector grant making to charities fell from £6 billion to just £2.2 billion.

In addition, the proportion of charity income from public sector grants now stands at just 5.5%, a decline of more than 60% since 2004, according to the National Council for Voluntary Organisations’ Civil Society Almanac of 2015.

A key challenge the group needs to overcome is councils’ and Whitehall’s focus on contracting, which now dominates how their money is handed to the charity sector. The NCVO Almanac shows that of the £13.3 billion given to charities by government bodies in 2012/13, 83% was through contracts or fees.

Changing minds

Kathy Evans, chief executive of Children England, another group involved in the Grants for Good campaign, accepts that persuading councils and government to focus on grants rather than contracts represents a significant shift in their thinking.

“A few years ago the public sector would look at commissioning services as well as funding charities through grants. Now we are encountering the view that grants are out-dated, unaccountable and a sloppy way of spending money,” says Evans.

Austerity is another hurdle to overcome, with commissioners seeing the amalgamation of funds within contracts, which lock charities into specific measureable outcomes, as the most efficient way of stretching their meagre finances.

To counter this the group is meeting in March to start gathering case studies of grants to charities that have helped public organisations get “more bang for their buck.” It is hoped this will be available online and form a central part of their lobbying efforts.

Other benefits of grant giving over contracting, says Evans, is that “it can be given on a discretionary basis so you can avoid the whole costly procurement process.”

Grant giving over contracting can also be a “lever to help bring in additional resources”, says Evans. Public sector organisations can even stipulate that match funding is expected to be raised by the charity, through local fundraising, the Big Lottery or other charitable foundations, she adds.

Flexibility

Anjelica Finnegan, senior policy and public affairs officer at the Charity Finance Group, says grants, rather than contracts, also give charities “greater flexibility” to “respond quickly to the needs of their beneficiaries and adapt their services correspondingly”.

“But under a contract it is spelt out that they must deliver a service in a particular way, even if it is not working,” she adds.

DSC policy officer Ciaran Price hopes councils, which have been hit particularly hard by shrinking central government grants since 2010, will find the group’s argument around cost efficiency particularly attractive, citing latest Local Government Association estimates that councils will face a further 29% funding cut in real terms by 2019/2020.

“Grant-making is easier, quicker, and better value for money. Without the need for complicated terms and conditions, lots of legal advice or long tendering processes services can be implemented quicker at less of an administrative cost,” says Price.

The Labour Party’s shadow charities minister Anna Turley backs the campaign’s call for more grant giving. She says: “Current contract funding looks at specific projects or outcomes but that doesn’t give charities the room to breathe or the ability to pay for the core functions.

“There is something important in telling the sector through grants to carry on what it has always done well – to innovate, be creative and solve problems on the frontline in a way that the public sector can’t.”

Already evidence is emerging that some public service funders are seeing the benefits of grant giving over contracting.

Evans is particularly heartened by a move by Labour controlled Camden Council to focus its funding to local charities on a seven-year package of grants rather than specific contracts that are put out to tender to all providers across a range of sectors.

The package called the Strategic Partners Fund is in two parts, one called neighbourhoods and another focusing on equalities. In total it is worth £2 million a year from 2017 to 2021, with a smaller amount on offer for the last three years.

Evans says: “This is a council saying that over the next seven years the problems they are going to encounter will be varied and changing and that they want to know that they have partnerships in place with local charities so that they can build the capacity to support that work.”

Such a relationship also requires trust from funders that a charity will use a grant wisely without the need to guarantee this by putting in place restrictive contract agreements.

Advocacy

But many of those involved in Grants for Good are concerned this trust is being undermined by the Cabinet Office’s announcement in February that charities will be banned from using government grants for campaigning or lobbying.

Cabinet Office minister Matthew Hancock, says the move has been made so that “taxpayers’ money must be spent on improving people’s lives and spread opportunities, not wasted on the farce of government lobbying government”.

But Evans has branded the move as “deeply clumsy” and “very anti-charity in a nasty way in terms of its language”.

She also questions how workable it will be as it would be difficult for government to prove grant money had been used for lobbying or for a charity to prove it hadn’t.

In addition, she believes some Whitehall departments may be forced to resist the move as they have financial arrangements with charities in place specifically to influence their policy.

One example is the Children’s Strategic Partnership, which the Department for Education created to help improve policy making and involves NSPCC and 4Children. “It is work in shaping policy. That is not incidental to the funding for those involved, it is the very reason for it,” says Evans.

National Association for Voluntary and Community Action chief executive Neil Cleeveley says by attempting to impose the clause, public sector funders will lose “an opportunity to better understand how money is being spent”.

“One of the reasons government works with charities in this way is because they speak up on behalf of their service users, who have their trust, in a way others can’t,” he adds.

Turley has already guaranteed that Labour “would revoke” the clause “100 per cent”. She adds: “It smacks of insecurity and an unwillingness to appreciate what the sector can provide in improving the quality of policy making.”

With austerity, restrictions on campaigning and a focus on contracting now dominating how public sector organisations work with charities it is clear the Grants for Good group may face an uphill struggle to convince councils and Whitehall departments that grant giving should come back into fashion.

In the meantime charities are battling to find alternative sources of income to ensure they can carry on supporting their beneficiaries.

Finnegan says many are “diversifying, looking to increase donations and charging for some services where appropriate, but it is difficult”.

Charitable trust funding is another source the sector is increasingly turning to.

According to the Association of Charitable Foundations’ Giving Trends 2015 report, grant giving by the top 300 Foundations rose 2% to £2.5 billion between 2012/13 and 2013/14. Of these foundations, which account for 90 per cent of independent charitable foundation giving, two-thirds saw a real terms increase in grant giving.

However, Finnegan says that such alternative forms of income are “still not coming in at the same pace as the government cuts to grants”.

Cleeveley warns that unless public sector funders see charities as “an investment” through grant giving then many will continue to face an uncertain future.

Joe Lepper is a freelance journalist

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