Small and medium-sized charities have been hardest hit by public sector funding cuts, according to new research.

Two new studies have revealed local and central government funding for charities with income between £25,000 and £1m reduced by up to 44 per cent between 2008/09, a higher proportion of income for these charities than for larger organisations.

The studies argued government funding has shifted towards competitive commissioning and contracting models which have allowed larger charities and organisations to dominate the market.

The Lloyds Bank Foundation funded research by NCVO and IPPR North showed small and medium-sized charities have sought to close the funding gap by increasing income from individuals by up to 21 per cent, but this has still resulted in an overall shortfall.

NCVO’s report, Navigating Change: An Analysis of Financial Trends for Small and Medium-Sized Charities explores how small and medium-sized charities have been affected by the changing financial landscape since 2008/09.

IPPR North’s report, Too Small to Fail: How Small and Medium-Sized Charities are Adapting to Change and Challenges reviews the current literature on small and medium-sized charities, exploring the reported strengths and weaknesses of smaller charities.

Income loss was uneven across geographical regions, with small and medium-sized charities in the North East, North West, and West Midlands having lost the highest proportion overall.

Income declined for every sector, with legal services, social services, and health seeing particularly large reductions. Those smaller charities working in deprived neighbourhoods are more likely to have been affected, as well as those who work with black and minority ethnic communities.

Cuts and changes to how funding is distributed were reflected in volatility in charity finances, the research found. Half of smaller charities experienced an income fluctuation of at least 20 per cent, often due to their reliance on a single grant or contract.

Publishing the research, Lloyds Bank Foundation called for public commissioning to be reformed to ensure resources reach small and medium-sized charities, and for both independent and public funders to take steps to reduce the volatility of small and medium-sized charities’ income.

Further, the foundation argued independent and public funders need to support charities to build their capacity.

Lloyds Bank Foundation for England and Wales chief executive Paul Streets said small and medium-sized charities often reach and engage vulnerable people that larger organisations cannot. However, it is the smaller charities that are being hit hardest by funding cuts.

“With the long-term squeeze continuing on local government funding, the Government must heed the warnings in this research and act to reform how it funds and commissions otherwise we will all wake up one day and be shocked at what we have lost,” Streets said.

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