Analysis: The struggle in the north east

The demise of the Northern Rock Foundation and public spending cuts have left a big funding shortfall. Andy Hillier reports

Newcastle upon Tyne
Newcastle upon Tyne

Newcastle upon Tyne has the air of a bustling and wealthy city. The neoclassical architecture that dominates the centre is immaculately maintained and there is an abundance of upmarket shops.

This show of affluence masks difficult times in the city and its surrounding area. The north east was the only UK region where the unemployment figure rose rather than fell in May this year; it is currently 10.1 per cent, compared with 6.8 per cent nationwide.

The region has also been badly affected by public sector cuts. Newcastle City Council says it has had to find £158.4m of savings since 2010/11 and a further £24.5m will be cut from its budget next year. Challenging Times: Prospects for Local Government in North East England, a study carried out by Durham University earlier this year, found that the average cut to local authorities in England would be 2.9 per cent in 2014/15, but in the north east it would be an average of 3.9 per cent, rising to 4.7 per cent in some councils.

The voluntary sector in the region has not escaped. Research by the support body the Voluntary Organisations' Network North East shows that at least 30 charities have closed since 2011, 62 per cent of charities are dipping into their reserves to survive and more than 50 per cent anticipate making redundancies in the coming year.

Jo Curry, chief executive of Vonne, says that the region's voluntary sector has been hit particularly hard because of its historical reliance on public sector funding. "Before the financial crisis struck, 49 per cent of its money came from the public sector, compared with 38 per cent nationally," she says. "It has been highly dependent on the public sector."

Sally Young, chief executive of the Newcastle Council for Voluntary Service, says that parts of the sector have also faced increased demand because of welfare reforms. "The bedroom tax has been a problem in deprived areas like Walker and the changes to disability benefits have affected people because so many have industrial and post-industrial diseases," she says. "We have the double whammy of less money and greater demand for services."

Young says that the local Labour-run council has, to its credit, tried to offset some of the cuts by setting up the Newcastle Fund, a £2m grant source for the voluntary sector, but this simply does not make up for lost income. "The local authority is trying its best in difficult circumstances," she says. "But it's stuck between a rock and hard place."

The demise of the Northern Rock Foundation has also been a major blow. It distributed more than £27m a year to the sector in the north east and Cumbria in 2006. But after the collapse of the Northern Rock bank in 2007, funding has dwindled to £7m a year and the foundation's grants programmes will close at the end of the year. "Quite a few organisations saw the foundation as their first source of funding," says Curry.

The decision by the government to create large contracts for schemes such as the Work Programme and Transforming Rehabilitation has also affected the local voluntary sector, says Young. "The promises offered by new commissioning arrangements have not come to pass," she says. "Various medium-sized organisations locally have not been able to take part in the Work Programme; with Transforming Rehabilitation, some of our really big charities formed a consortium in order to become a prime contractor, but in the end decided it was simply too risky."

A national helpline, meanwhile, has replaced a refugee support service in Newcastle that was, by popular consent, doing a good job providing individual advice, says Young. She also complains about the amount given to the National Citizen Service, the youth programme that received more than £84m from the Office for Civil Society in 2013. "A lot more could be achieved if the money was given to local community groups," she says.

So how has the local voluntary sector survived? Some organisations have reduced staff hours or wages and some previously paid staff now work for free. A study carried out by Vonne earlier this year of the job adverts on its website shows that sector salaries dropped by an average of 12 per cent in real terms between 2009-11 and 2012-14; the largest fall of 18 per cent was for fundraising posts.

Local people have filled some of the gaps. There has, says Curry, been a noticeable increase in the number of parents seeking support to set up community groups to provide activities for children after the loss of council-funded schemes.

The reduced funding has led some charities to form closer working ties with each other. Young says this is a positive development, but charities have also had to become more competitive. "One minute you'll be sat in a room with an organisation, working on a project, and the next you'll be bidding against it for a contract," she says.

Young suspects that some charities in the area are merely hanging on and some big ones might close in the near future. But Curry challenges the view that it's all grim for the sector in the north east. "We're seeing voluntary groups coming in and taking over the running of libraries, and good schemes for redeveloping empty homes," she says. "There are some positives among the gloom."

How the community foundation managed to weather the storm

The community foundation funds the Chopwell Tea Dance in Gateshead

The Community Foundation Tyne & Wear and Northumberland is the largest community foundation in the UK. Last year, it awarded £5.4m in grants to more than 1,600 organisations. Eighty-six per cent of the grants were for less than £3,000 and only 6 per cent were for more than £10,000.

Rob Williamson, its chief executive, says its endowment was worth about £44m before the financial crisis, but this went down to £33m at one point. "The more acute problem was the disappearance of interest," he says. "About 10 or 15 per cent of our operating costs were supported by short and long-term deposits. We had to do what many operating charities have done: restructure and reduce running costs." This meant losing four of its 20 full-time-equivalent posts in 2009/10.

But the past few years have seen an upturn. Healthy stock market returns, coupled with success in attracting new major donors, has helped to increase its endowment to about £60m. "We have, on average, added between £1m and £1.5m in new endowment gifts in each of the past five years, which has been helped, partly, by the government match-funding schemes," he says.

The foundation has seen a fall in corporate donations, but Williamson says it has not been as large as expected. "Some corporate donors in the region have maintained and even stepped up their giving," he says.

But the gradual demise of the Northern Rock Foundation, where Williamson worked for six years, has been a major blow. Until 2007, the Northern Rock bank gave 5 per cent of its annual pre-tax profits to the foundation for its work in the north east and Cumbria. In 2006, it awarded grants worth more than £27m, but since the bank was taken into public ownership in 2008 and then sold to Virgin Money in 2012, the amount has decreased to about £7m in 2014. The foundation's grants programmes will close at the end of 2014.

Williamson says: "It was the biggest corporate foundation outside London, and we don't have that now; it's opened up a real gap in the financial ecology of the sector. It's particularly hard to get funding for multi-year staff posts and big capital projects. The bits of the sector that face the biggest problems are organisations in the £50,000 to £500,000 a year income category."

Williamson says the foundation has tried to help with initiatives such as the Survive to Thrive Fund, which provides grants to organisations that want to adapt how they work. It has also been working with London-based funders, such as the Esmée Fairbairn Foundation, to help them reach more people in the north, and is trying to educate local charities about applying to funders they previously might not have approached.

He feels upbeat about the foundation's own future, but fears what will happen to the wider sector: "I'm optimistic that some organisations have found creative ways to respond to difficulties, but I don't think that takes away the massive impact of public sector shrinkage on the third sector. I'm not sure we have really seen the full impact of that. I'm concerned that the sector doesn't have the tools to adapt."

'Council funding is just papering over the cracks'

Outside the main cities in the north east, the voluntary sector is under pressure from local council cuts, the swing away from grant funding to competitive tendering and the growth in demand for services resulting from welfare reform.

Malcolm Fallow, chief executive of the East Durham Trust, which mainly supports charities in the former coalfields of County Durham, says vital front-line groups are suffering. "There isn't a day that goes by when I don't talk to a community centre manager who is talking about significant cuts to their income," he says. "But community centres in places like the Durham Dales are a lifeline."

There are lots of groups fishing in an ever-decreasing pond

Malcolm Fallow, chief executive of the East Durham Trust

The fall in funding from the Northern Rock Foundation has been a blow to charities in east Durham and has contributed to increased pressure on other funders, Fallow says: "There are lots of groups fishing in an ever-decreasing pond."

But the biggest effect on the local sector has come from national policies such as the Welfare Reform Act, he says, and the government needs to take greater account of the "snowballing" effect that such policies are having on individuals and the knock-on effect for the voluntary sector. "The benefit sanctions individuals now face mean that they need to turn to community support, but that support is dwindling," says Fallow.

"Local people are seeking everything from food-parcel services to advice and support services. All of these are needed more than ever."

In and around the coastal town of Blyth in south-east Northumberland, the voluntary sector faces similar pressures. Thom Bradley, chief executive of Community and Voluntary Action Blyth Valley, says the area did not benefit from the same level of regeneration money as conurbations such as Newcastle, so it hasn't experienced the corresponding steep falls in public spending. "In some ways, I think that's been a blessing because it hasn't built up lots of expectations that are chopped away very quickly," he says.

But local charities are receiving less grant funding and the money is distributed instead through competitive tendering. Contracts to provide services are then often won by larger organisations, "which are parachuted in and don't have the on-the-ground experience", says Bradley.

He believes standards of service are falling as a result. "No one wants to say the level of service has reduced as a result of tendering," he says. "The organisations that have issued the tender and won the tender don't want to admit to that, so they seem to mash up the data to show they have achieved things."

Local authorities such as Blyth Town Council have remained supportive and provided more than £100,000 to voluntary groups, but Bradley says such sums are merely "papering over the cracks" left by cuts in spending by the county council and other public agencies.

He also sees Big Lottery Fund money propping up services that were previously funded by the state. "Children's centres are now a priority for the Big Lottery Fund because a lot of the funding has been cut from children's centres and the Sure Start programmes," Bradley says.

Voluntary sector organisations in the area are increasingly having to downsize and rely more on part-time staff and volunteers. Their efforts are laudable, but it's not a sustainable way of working, says Bradley: "People will get tired or perhaps too old and will want to stop."

Case study: Riverside Community Health Project

The Riverside Community Health Project in Benwell, one of the most deprived parts of Newcastle, provides projects and advice services, mainly for parents and children. A decade ago it had an income of £750,000 a year, but this has dropped to about £350,000 due to cuts in government programmes such as Sure Start.

Anne Bonner, the chief executive, says it is a difficult time for medium-sized projects like this one. "The way they share the money out is not done on deprivation status, so some wards down south have gained money and some in the north have lost," she says. "It feels very tough – we're seeing lots of people with more chaotic lives."

Benwell's population includes a lot of eastern Europeans, but Riverside's specialist help for them has been compromised. "The previous government had the Migration Impacts Fund, but this government slashed that," she says. "Since then, we've had to beg, borrow and steal."

Austerity has prompted new activity including distribution of food bank vouchers. "We agreed to give out vouchers, but our reception got clogged up," says Bonner. "So we trained volunteers to give out vouchers in the room next to the food bank."

But there have been some benefits in making do with less, she believes. "People and organisations are working more closely together," she says. "It's good in a way that some of the infrastructure has gone."

However, she envisages tough times ahead. "In a best-case scenario we'll get our lottery bid money and the Sure Start money won't be cut by too much. But it's very worrying – I do have days when I'm overwhelmed by it."

Case study: Building Futures East

The Walker area of Newcastle used to be a centre of shipbuilding, but since the industry's decline in the 1960s it has become the most deprived of the 26 council wards in the city.

In 2006, Anthony Woods-Waters set up Building Futures East to provide vocational training in the area. It has a separate social enterprise that offers garden and environmental services to businesses and homes and tries to link companies with the local community.

The charity, which employs 20 people, initially benefited from regeneration money and had an annual income of almost £1m, but that has halved. Woods-Waters says it has managed to avoid redundancies, but new vacancies have been left unfilled. "I've also had to reduce the working week, and I've taken a pay cut," he says.

The charity continues to attract small grants to test new projects, but finds it increasingly hard to find funding for longer-term projects. Its grant from the Skills Funding Agency, which supports its training programmes, has been reduced.

Woods-Waters says that funding is increasingly competitive. "People are chasing the same pots of money," he says.

His latest idea is to start a horticultural nursery, but it will require a £500,000 investment. "It will produce flowers and shrubs that we can use in the social enterprise, and fruit and vegetables to be pressed for use in jams and preserves," he says.

"Increasingly, organisations like mine are being pushed down a commercial route, but I don't think it delivers the best value or service. It raises ethical questions for organisations – but you either survive or perish."

Case study: North East Prison After Care society

Nepacs provides the families of prisoners with grants and holidays, and helps to run visitor centres in seven prisons. A third of its income of almost £1m comes from contracts with prisons, a third from trusts and foundations and a third from its six prison tea bars.

Helen Attewell, chief executive, says it has recently increased its staff to about 30 full-time equivalent posts: "We are resilient in that we're an old charity set up in 1882 and we're not something set up with fly-by-night European funding," she says. "We have a real track record of working with the local criminal justice system and have some reserves – it's not hand to mouth."

The charity has 200 volunteers who help it to deliver good services at a low price. Attewell believes this is why local prisons haven't put them out to competitive tender. But the threat still looms: its service level agreement is renewed annually and Attewell believes tendering is only a matter of time. She also thinks Nepacs would be well placed to win: "I'd hate to be complacent, and I know there's pressure to have bigger and bigger contracts and spend less time on contract management. But we really see the value of having something that's accountable to the local area."

The charity has been talking to organisations bidding for the Ministry of Justice's Transforming Rehabilitation, a programme to change the way offenders are managed in the community. "We feel we have to be part of that discussion because prisons need to recognise how essential it is to keep family ties," she says. "But I remain wary of profit driving the way you deliver services."

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